Vol. 150, No. 48 — November 26, 2016

Regulations Amending the Ozone-depleting Substances and Halocarbon Alternatives Regulations

Statutory authority

Canadian Environmental Protection Act, 1999

Sponsoring departments

Department of the Environment and Department of Health

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the regulations.)

Executive summary

Issues: Hydrofluorocarbons (HFCs) are chemicals widely used in refrigeration and air-conditioning equipment and foam manufacturing. They are also greenhouse gases (GHGs), most with global warming potentials that are hundreds to thousands of times more potent than carbon dioxide (CO2). GHG emissions are contributing to a global warming trend that is associated with climate change. Without immediate action, annual GHG emissions from HFCs in Canada are projected to increase from 6 megatonnes (Mt) CO2- equivalent (CO2e) in 2013 to 22 Mt in 2030.

Description: The proposed Regulations Amending the Ozone-depleting Substances and Halocarbon Alternatives Regulations (the proposed Amendments) would control HFCs through the phase-down of consumption of bulk HFCs complemented by controls on specific products containing or designed to contain HFCs, including refrigeration and air-conditioning equipment, foams and aerosols. (see footnote 1)

Cost-benefit statement: Between 2018 and 2040, the proposed Amendments are expected to result in cumulative GHG emission reductions from HFCs of about 176 Mt CO2e. The benefits of these GHG emission reductions are valued at about $6.2 billion. Compliance costs borne by industry are estimated at almost $700 million, and are expected to be largely offset by cost savings of almost $600 million. The net benefit of the proposed Amendments is estimated to be more than $6 billion (in present value terms, discounted at 3% per year to 2016).

“One-for-One” Rule and small business lens: The proposed Amendments would result in a net decrease in average annual administrative burden costs of around $1,100, or about $60 per business per year. The proposed Amendments are therefore considered to be an “OUT” under the Government of Canada’s “One-for-One” Rule.

The small business lens applies and, after industry consultations, various flexibilities were incorporated into the proposed Amendments to address the concerns of small businesses. These flexibilities are expected to reduce the cost of the proposal for small business, relative to the initial option considered, by $2.2 million, or $220,000 per small business over 23 years.

Domestic and international coordination and cooperation: The proposed Amendments would be consistent with Canada’s commitment in the March 2016 U.S.-Canada Joint Statement on Climate, Energy, and Arctic Leadership to take action to reduce HFC use and emissions. The proposed Amendments would also complement existing provincial and territorial measures, which aim to minimize and reduce HFC emissions from existing equipment. The proposed Amendments are also consistent with the October 2016 amendment to the Montreal Protocol and put Canada in a position to ratify this amendment.

Background

Hydrofluorocarbons (HFCs) are chemicals widely used as refrigerants in refrigeration and air-conditioning equipment and blowing agents in foam manufacturing. They are also greenhouse gases (GHGs) with a global warming potential hundreds to thousands of times more potent than carbon dioxide (CO2). GHG emissions are contributing to a global warming trend that is associated with climate change. In November 2015, Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer (the Montreal Protocol), including Canada, agreed to negotiate an amendment in 2016, to phase down HFCs. On October 15, 2016, Parties adopted an HFC phase-down amendment wherein developed countries will begin in 2019 to gradually phase down HFCs to 15% of calculated baseline levels by 2036. Developing countries would take their first step to control HFCs in 2024 or 2028, phasing down to 15% or 20% of baseline levels by 2046.

The Montreal Protocol is an international treaty designed to protect the ozone layer. Originally signed by Canada in 1987, the Montreal Protocol obligates Parties to phase out the manufacture and consumption of those substances known to be responsible for ozone depletion. The phase-out is achieved through a legally binding timetable established by the Parties with the ultimate goal of complete elimination. The Montreal Protocol is widely recognized as one of the most successful international environmental treaties, with significant reductions in the use of ozone-depleting substances contributing to the expected recovery of the ozone layer by mid-century. In addition, given that many ozone-depleting substances are also potent greenhouse gases, the Montreal Protocol has, as a secondary accomplishment, contributed to climate change mitigation by averting the emissions of 135 billion tonnes of CO2e GHGs.

Canada’s obligations under the Montreal Protocol were implemented by the Ozone-Depleting Substances Regulations, 1998, which replaced three regulations controlling ozone-depleting substances and products containing them. The Ozone-Depleting Substances Regulations, 1998 phased out the manufacture and consumption of chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs). HFCs are manufactured chemicals that were introduced on the global market as replacements for ozone-depleting substances, such as CFCs and HCFCs, which are being phased out under the Montreal Protocol.

Although HFCs are not ozone-depleting, they are (like many CFCs and HCFCs) short-lived, potent GHGs that have global warming potentials hundreds to thousands of times greater than CO2. (see footnote 2) GHG emissions are contributing to a global warming trend that is associated with climate change, which is projected to lead to both changes in average conditions and in extreme weather events. The impacts of climate change are expected to become more negative as the global average surface temperature becomes increasingly warmer. Climate change impacts are of major concern for society: changes in temperature and precipitation can impact natural habitats, agriculture and food supplies, and rising sea levels can threaten coastal communities. (see footnote 3)

HFCs are not manufactured in Canada, but are imported in bulk and found in imported and manufactured products, such as domestic appliances, refrigeration and air-conditioning systems, motor vehicle air-conditioning systems, foam products, and aerosols. HFCs enter the environment due to leakage during assembly, usage, and disposal of these products. (see footnote 4)

Currently, there are federal, provincial, and territorial regulations in place to limit emissions from existing equipment that uses HFCs. These regulations include the Federal Halocarbon Regulations, 2003, which aim to minimize and reduce HFC emissions from equipment owned by the Crown or a federal work or undertaking or from equipment located on Aboriginal lands or federal lands, by requiring regular equipment maintenance and recovery of refrigerants during equipment maintenance and at end-of-life. These regulations do not control bulk HFCs.

Provincial and territorial regulations complement these federal regulations. The provinces and territories are responsible for the sale, handling, use, recovery and recycling of ozone-depleting substances and their halocarbon alternatives used in equipment that falls under their jurisdiction. Almost all Canadian provinces and territories have now implemented legislation for the recovery of ozone-depleting substances and HFCs. Notwithstanding these federal and provincial measures, the use of HFCs would still result in leaks from equipment and products that contain them.

In recognition of the risks of HFCs, a notice of intent was published in the Canada Gazette, Part I, in December 2014, announcing Canada’s intention to develop regulatory measures to control the manufacture, import, and use of HFCs. This notice affirmed Canada’s intention to align its proposed measures with those of the United States, to the extent possible, and to continue to work with international partners to globally phase down HFCs. (see footnote 5)

At the United Nations Framework Convention on Climate Change (UNFCCC) conference in December 2015, the international community, including Canada, reached the Paris Agreement, an accord intended to reduce global greenhouse gas emissions to limit the rise in global average temperature to less than 2°C and to pursue efforts to limit it to 1.5°C above pre-industrial levels. As part of its Intended Nationally Determined Contribution (INDC) commitment under the Paris Agreement, Canada pledged to reduce national GHG emissions 30% below 2005 levels by 2030, including a commitment to gradually phase down HFCs. (see footnote 6) The Department of the Environment (the Department) currently estimates that annual emission reductions of 291 megatonnes (Mt) will be required in 2030 to deliver on this commitment. (see footnote 7)

In March 2016, Canada and the United States issued the U.S.-Canada Joint Statement on Climate, Energy, and Arctic Leadership and resolved to work together to implement their respective commitments under the Paris Agreement. Both countries committed to reducing the use and emissions of HFCs using their respective domestic frameworks, while agreeing to propose new actions in 2016. In addition, both the United States and Canada affirmed their commitment to adopt, in 2016, a Montreal Protocol amendment to phase down HFCs. (see footnote 8) As a first step to more comprehensive measures on HFCs, the Government of Canada introduced, in 2016, the Ozone-depleting Substances and Halocarbon Alternatives Regulations (the Regulations), which will, as of December 29, 2016, repeal and replace the Ozone-Depleting Substances Regulations, 1998 and introduce a permitting and reporting system to monitor quantities of HFCs imported, manufactured, and exported, with reporting to begin in 2018 for activities that took place in the 2017 calendar year. (see footnote 9)

Issues

GHG emissions, including HFCs and CO2, are contributing to a global warming trend that is associated with climate change. HFCs have global warming potentials hundreds to thousands of times greater than that of CO2. Without immediate action, annual HFC emissions in Canada are projected to increase from 6 Mt of CO2e emissions per year in 2013 to 22 Mt per year in 2030, underlining the significant contribution of HFCs to global warming. (see footnote 10) HFC emissions are projected to increase at a faster rate than economic growth due to increased use as they replace HCFCs that have been phased out under the Montreal Protocol.

Current measures do not control the import of bulk HFCs, or the import and manufacture of equipment and products that contain HFCs, and do not completely eliminate emissions that occur from leakage during the life cycle of HFC-containing products.

Parties to the Montreal Protocol adopted an amendment to phase down the production and consumption of HFCs. In order to ratify this amendment, the Department would need to put regulatory measures in place that would allow Canada to meet its obligations to phase down HFCs according to the conditions set out in the amendment.

Objectives

The proposed Regulations Amending the Ozone- depleting Substances and Halocarbon Alternatives Regulations (the proposed Amendments) aim to reduce the supply of HFCs that enter into Canada and the demand for HFCs in manufactured products, thereby averting future HFC releases to the environment. This would reduce Canadian GHG emissions, help limit global warming, and contribute to Canada’s international obligations to combat climate change. The proposed Amendments also aim to put Canada in a position to ratify the amendment to the Montreal Protocol.

Description

The proposed Amendments would

  1. Control the amount of HFCs available for use through the phase-down of bulk HFCs;
  2. Introduce controls on specific products containing HFCs, including air-conditioning and refrigeration equipment, foams and aerosols; and
  3. Make minor modifications to the HCFC provisions in the Regulations.

Accompanying the proposed Amendments are proposed consequential amendments to the Regulations Designating Regulatory Provisions for Purposes of Enforcement (Canadian Environmental Protection Act, 1999) [the Designation Regulations]. (see footnote 11) The Designation Regulations designate the various provisions of regulations made under the Canadian Environmental Protection Act, 1999 (CEPA) that are linked to a fine regime following a successful prosecution of an offence involving harm or risk of harm to the environment, or obstruction of authority. The Regulations are listed in the Designation Regulations, which would need to be amended to reflect the addition of new offences pertaining to the import, manufacture and export of HFCs (e.g. import of non-compliant products containing HFCs).

1. Phase-down of consumption of bulk HFCs

HFCs are commonly imported into Canada in bulk for use in the manufacture, servicing and maintenance of refrigeration and air-conditioning equipment, and in the manufacture of foam-blowing products. Reducing quantities of HFCs imported into Canada would encourage manufacturers of products containing HFCs to transition to alternative substances, as the supply of HFCs would decrease.

Under the proposed Amendments, overall “baseline” levels of HFC consumption would be calculated using consumption (defined as the sum of quantities manufactured and imported minus quantities exported) of HFCs and HCFCs from 2011 to 2013. All importers of bulk HFCs would receive an individual consumption allowance, which when added together would total Canada’s consumption baseline. These consumption allowances would be distributed based on the individual importer’s share of Canada’s total HFC consumption in 2014 and 2015. The Department collected this information through mandatory surveys conducted from 2014 through 2016. Following the phase-down schedule in the proposed Amendments (see Table 1), the quantity of HFCs authorized for import under consumption allowances would decrease over time, while individual shares of this decreasing number would remain constant. Individual allowances could be partially or fully transferred to other parties, subject to the written approval of the Minister.

Table 1: Canada’s HFC consumption phase-down — Percentage reduction from baseline

Year

Percentage Reduction from Baseline

2019

10

2024

35

2030

70

2036

85

HFCs contained in imported pre-charged equipment such as cars, air-conditioning systems, refrigeration systems and domestic appliances would not be included in the phase-down provisions, but would be subject to the product-specific controls.

2. Product-specific controls

The proposed Amendments would introduce product-specific controls that would prohibit the import and manufacture of products and equipment that contain or are designed to contain any HFC, or any blend that contains an HFC, with a global warming potential greater than a designated limit. The product-specific controls would apply to the refrigeration and air conditioning, foam, mobile air-conditioning, and aerosols sectors. Unique global warming potential limits and prohibition dates would be applied to different product types within each sector.

The proposed product-specific controls provide exceptions for a number of technical and medical aerosol products, such as certain cleaning products for electronics and metered-dose inhalers, for which alternatives do not yet exist. (see footnote 12) In addition, the proposed Amendments would allow for exceptions, with the approval of the Minister of the Environment, if

  • the product is necessary for health and safety or is critical for the good functioning of society; and
  • there are no technically and economically feasible alternatives.

The proposed Amendments would not prevent the use and sale of products manufactured or imported before the date of prohibition.

3. Minor HCFC amendments

The changes to the HCFC provisions include the introduction of measures that would allow Canada’s sole manufacturer of HCFCs to manufacture additional quantities of HCFCs when necessary to support other countries. These measures are consistent with the provisions in the Montreal Protocol and allow the Minister to track, via a permitting system, any such quantities produced. Changes also include corrections to the English version of one provision to ensure consistency between the English and the French versions of the regulatory text.

Regulatory and non-regulatory options considered

Beginning December 29, 2016, with the coming into force of the Ozone-depleting Substances and Halocarbon Alternatives Regulations, the Government of Canada will begin regulating the manufacture and consumption of HFCs through the introduction of a permitting and reporting system; however, there will be no limits to the quantities of HFCs that can be consumed in Canada. The Government of Canada also seeks to minimize and reduce HFC emissions, through the Federal Halocarbon Regulations, 2003, from equipment owned by the Crown or a federal work or undertaking or from equipment located on Aboriginal or federal lands. Similar to these federal measures, provinces and territories have legislation in place that aims to minimize and reduce emissions of HFCs used in equipment under provincial/territorial jurisdiction. Other major industrialized countries have also enacted regulations to limit growth in emissions of HFCs and avoid future emissions. When considering how to address the public policy issue, the Government of Canada considered three options: maintaining the regulatory status quo, updating the regulatory requirements to fully align Canada–U.S. standards, or implementing an approach harmonized with U.S. measures, with a Canada-specific bulk phase-down.

Status quo approach

Without the proposed Amendments, no measures would be in place to reduce HFC use in Canada, which is expected to increase in the future, as HFCs replace the HCFCs currently being phased out. Although some reductions in HFC use may occur due to measures in other countries (e.g. measures in the United States may reduce HFC content in imported products), the Department anticipates that the status quo approach would result in increasing HFC use, and a risk that Canada could become a dumping ground for products containing HFCs. Given that the status quo approach would result in increased HFC use and emissions, contribute to global warming, and undermine Canada’s international obligations to combat climate change, this option was rejected.

Regulatory approach — Canada–United States alignment (no bulk phase-down)

In 2014, the Department committed to taking domestic action on HFCs through a Notice of Intent in which it proposed to align measures with those of the United States to the extent possible. The current U.S. approach includes product-specific controls, but no bulk phase-down. However, it is anticipated that following ratification of any HFC phase-down amendment to the Montreal Protocol, the United States would introduce a phase-down. The current U.S. approach, under its Significant New Alternatives Policy (SNAP) Program, prohibits the use of specific HFCs in certain end-use equipment/products. During consultations, stakeholders expressed a strong desire to include a phase-down component, in addition to the product-specific prohibitions outlined in the Notice of Intent. This approach is similar to the one used to successfully phase-out ozone-depleting substances such as CFCs and HCFCs in Canada. Given this stakeholder feedback, this option was rejected.

Regulatory approach — Canada–United States harmonization, with bulk phase-down

The proposed Amendments would include a phase-down of bulk HFC consumption that is not included in the current regulatory framework of the United States. For the product-specific limits, the Canadian approach would not prescribe the specific HFCs prohibited or the alternatives allowed in each of the equipment and product types. Instead, the proposed Amendments would establish global warming potential limits for a variety of products, and allow stakeholders to choose how best to comply. The proposed global warming potential limits would allow for the same alternatives to be used in both Canada and the United States as well as prohibit the same HFCs, and would also prevent the introduction of high global warming potential substances from being used. The timing of the introduction of product-specific HFC controls would, however, be either aligned with the timing in the United States or come into force shortly after any new U.S. provisions. These different approaches were proposed based on consultation with industry regarding the availability of technologies and the implementation challenges.

Canada’s proposed Amendments are similar to regulatory controls implemented in the European Union and Japan, and that are being proposed by Australia, which include both a phase-down of HFCs and product-specific controls.

Benefits and costs

Between 2018 and 2040, the proposed Amendments are expected to result in cumulative GHG emission reductions from HFCs of about 176 Mt CO2e. The benefits of these GHG emission reductions are valued at about $6.2 billion. There would be compliance costs carried by industry of almost $700 million, which are expected to be largely offset by related cost savings of almost $600 million. The net benefits of the proposed Amendments are estimated to be more than $6 billion (in present value terms, discounted at 3% per year to 2016).

Analytical framework

The impacts of the proposed Amendments have been assessed in accordance with the Treasury Board Secretariat (TBS) Canadian Cost-Benefit Analysis Guide. (see footnote 13) Regulatory impacts have been identified, quantified and monetized where possible, and compared incrementally to a non-regulatory scenario. The analysis has estimated these impacts over a sufficient time period to demonstrate whether there is likely to be a net benefit.

The key expected impacts of the proposed Amendments are demonstrated in the logic model (Figure 1) below: a phase-down of HFC consumption, in addition to global warming potential limits (GWP) for certain HFC-containing products, would lead to the adoption of alternatives with lower global warming potential, resulting in decreased GHG emissions from HFCs. Compliance with the proposed Amendments would also lead to capital and operating costs for industry, with associated cost savings for some firms as a result of the lower cost of replacement substances.

Figure 1: Logic model for the analysis of the proposed Amendments

Phase-down of bulk HFCs

Reduction in supply of HFCs for use in products

Adoption of low GWP alternatives

Reduction in HFC emissions

Reduction in climate change impacts

Capital and operating costs

GWP limits for certain products

Increase in demand for HFC alternatives for use in products

Net costs to industry

Operating cost savings

The analysis compares the expected impacts of the proposed Amendments (the regulatory scenario) to a non-regulatory scenario that assumed the proposed Amendments are not implemented. This alternate scenario is referred to as a business-as-usual (BAU) scenario because it assumes that if the proposed Amendments are not implemented, then HFC use in domestic manufacturing and servicing will remain unchanged relative to projected levels. The incremental impacts (benefits and costs) between the two scenarios are then attributed to the proposed Amendments.

The time frame considered for this analysis is 2018–2040. This time frame captures one-time capital costs, which are expected to be carried between 2018 and 2025, as well as ongoing costs and savings due to changes in the choice of substance to replace HFCs between 2018 and 2040. GHG reductions are expected to increase over time, as the current stock of equipment using HFCs is replaced with new equipment using low global warming potential alternatives. Benefits exceed costs in any given year beyond 2025. Thus, the 2018–2040 time frame was considered sufficient for estimating whether the proposal would result in a net benefit.

All monetary results are shown in 2015 Canadian prices after inflating any prices that are not from 2015. When shown as present values, future year impacts have been discounted at 3% per year to 2016 (the year of the analysis), as per TBS guidance.

Analysis of regulatory coverage and compliance

To estimate the incremental benefits and costs of the proposed Amendments, the analysis considered who would be affected (regulatory coverage) and how they would most likely respond (their compliance strategies), as described below.

Regulatory coverage

Several industry groups that use HFCs will either be directly or indirectly affected by the proposed Amendments; others are not expected to be affected in a material way.

Importers of bulk HFCs: These would be regulated and would need to reduce the quantity of imported HFCs. It is expected that the import of specific alternative substances would be driven by demand from manufacturers and end-users, and any costs due to higher substance prices would be passed on to these groups.

Manufacturers of products containing HFCs: These would be regulated and would transition to alternative substances with lower global warming potentials, being motivated by product-specific controls and a reduced availability of HFCs due to the bulk phase-down.

Companies servicing new equipment with HFC alternatives: These would not be directly regulated but would be required to obtain alternative substances. In cases where equipment requires regular maintenance, it is expected that any incremental maintenance costs due to higher alternative substance prices would be passed on to end-users.

HFC recyclers and reclaimers: These would not be directly regulated nor would they be affected. Federal and provincial governments have initiatives to mandate and encourage the responsible management of recovered HFCs. This will increase the supply of HFCs, as HFCs from retired equipment are recovered and subsequently recycled or reclaimed. These quantities of recycled/reclaimed HFCs could be used to service existing equipment in years in which demand for HFCs exceeds the quantity of virgin HFCs that can be imported. These recycled/reclaimed quantities were not considered in this analysis, as it is expected that imported HFCs necessary to service and maintain legacy equipment will be available in sufficient quantities.

Importers of HFC-containing products: These would be regulated, but it is expected they would not be affected. They are assumed to be already meeting the proposed product-specific standards in the absence of the proposed Amendments, as they would likely need to meet similar regulatory measures already in place in the United States, European Union, and Japan. Therefore, it is expected there would be no incremental impacts from imported manufactured goods.

Regulatory compliance

As bulk importers comply with the phase-down schedule in the proposed Amendments, the annual supply of HFCs for domestic consumption will be reduced. As manufacturers comply with the product-specific controls on HFC use in the proposed Amendments, they are also expected to respond to the reduced supply of HFCs. Both the regulatory controls on HFC-containing products and the reduced supply of HFCs would encourage manufacturers to choose HFC alternatives with lower global warming potentials.

In choosing alternatives, manufacturers will have to consider whether they are technically feasible and safe, as well as consider the cost impacts of any feasible safe HFC alternatives. Domestic consumption of HFCs and alternatives, under the proposed Amendments, was modelled in two steps:

  1. Manufacturers of products subject to specific controls (grouped by “end-use”) would use alternative substances below the required product-specific global warming potential limits in the same quantities. Products manufactured with these alternative substances would then be serviced and maintained with the same substances.
  2. Manufacturers of products would respond to reduced supplies of HFCs by further adopting HFC alternatives. It is assumed that substances are imported in quantities to meet demand from manufacturers and servicing, subject to the supply constraint imposed by the phase-down.

For the purposes of this analysis, the alternative substances assumed to replace HFCs for each end-use were selected based on three main criteria.

  1. Technical feasibility: The substance is a technically feasible alternative with the chemical properties needed for the specific end-use.
  2. Safety: The alternative substance has been proven to be safe to use in a given application. Some alternatives to HFCs are flammable, and precautions must be taken when in use for safety reasons. These alternatives include hydrocarbons such as propane. However, flammable refrigerants and foam blowing agents can be used in systems and products designed for them. For end-uses where flammability poses a safety concern, flammable alternatives have not been considered as substitutes.
  3. Economic feasibility: The relative costs of the various potential alternatives and the associated capital costs were assessed to determine the most likely compliance choice. For some end-uses, manufacturers have an option to incur higher capital costs in order to benefit from operating cost savings. In cases where information was available regarding the ability of affected businesses to absorb high capital costs for a particular alternative, this information was used to aid in the determination of the most likely alternatives chosen.
Estimation of incremental benefits and costs

The proposed Amendments would phase down bulk imports of HFCs and control the use of HFCs in specified products that contain them, both reducing the supply of HFCs and restricting their use by product manufacturers. As the manufacturing of products containing HFCs shifts to HFC alternatives, a reduction in GHG emissions from HFCs would be expected. Some HFC alternatives may cost less, but others may cost more and there may also be capital costs necessary to adapt to using HFC alternatives. The proposed Amendments aim to reduce some industry administrative costs, but some additional government activity is assumed necessary to ensure compliance with the proposed Amendments. These benefit and cost estimates are described below.

GHG emission reductions benefits

Historic HFC quantities for each end-use are estimated using bulk HFC import volume data and in-product HFC survey data. Future HFC use is then projected forward using the Department of Finance Canada’s gross domestic product growth rates, and taking into consideration the continued replacement of phased-out HCFCs with HFC substitutes. The BAU scenario does not take into consideration the future adoption of recently introduced low global warming potential alternatives, such as hydrofluoroolefins (HFOs), which may be adopted by domestic manufacturers in the absence of the proposed Amendments.

To estimate future emissions attributable to HFC use, BAU leak rates were applied to estimated future quantities of HFCs used. Each end-use was assigned three life phases, with associated leak rates for each life phase: assembly, usage, and end-of-life disposal. These leak rates were developed from a survey performed by Environmental Health Strategies Inc. (EHS); they were then finalized in accordance with the quality control and verification guidelines of the Intergovernmental Panel on Climate Change (IPCC).

The global warming potential for each HFC substance is used in order to calculate its CO2 equivalence. These CO2e estimates are calculated over a 100-year time frame for each HFC substance. (see footnote 14) Global warming potential estimates were provided by the IPCC in its Fourth Assessment Report and have been used in this analysis.

The BAU estimates are consistent with the Department’s National Inventory Report and Canada’s Second Biennial Report on Climate Change. (see footnote 15), (see footnote 16) The following data sources were used to project future HFC consumption and the resultant emissions:

  • Environment and Climate Change Canada — Bulk HFC Import Section 71 Survey data (2008–2014);
  • Environment and Climate Change Canada — In-product HFC survey data (2005–2010); and
  • Environment and Climate Change Canada — National Inventory Report (1990–2014).

This same emission estimation process was applied to the regulatory scenario, with the same leak rates and life-cycle assumptions. Thus, emission reductions attributable to the proposed Amendments are driven by the reduction in global warming potential of the substances used in the regulatory scenario. Table 2 identifies the global warming potentials of HFCs currently used for various end-uses, and those for alternatives assumed to be used under the regulatory scenario.

Table 2: Compliance assumptions for the BAU and regulatory scenario (see footnote 17)

End-use

BAU Scenario for HFC

Global Warming Potential

Regulatory Alternative

Global Warming Potential

Stand-alone refrigeration 

R-404a

3 922

R-290 (propane)

3

R-407a

2 107

R-290 (propane)

3

HFC-134a

1 430

R-290 (propane)

3

Centralized refrigeration (small business)

R-404a

3 922

R-448a

1 273

R-407a

2 107

R-448a

1 273

Centralized refrigeration (large business)

R-404a

3 922

R-744 (CO2)

1

R-407a

2 107

R-744 (CO2)

1

Chillers

HFC-134a

1 430

R-450a

601

R-404a

3 922

R-450a

601

R-410a

2 088

R-450a

601

Mobile refrigeration

R-404a

3 922

R-450a

601

Industrial refrigeration

R-404a

3 922

R-448a

1 273

R-407c

1 774

R-450a

601

Domestic air conditioning

R-410a

2 088

R-444b

290

Domestic refrigeration

HFC-134a

1 430

R-600a

3

Extruded polystyrene foam

HFC-134a

1 430

Hydrocarbons

3

Rigid polyurethane foam and polyurethane spray foam 

HFC-245fa

1 030

HFO-1234ze

1

HFC-365mfc/227ea

1 150

HFO-1234ze

1

Motor vehicle air-conditioning (MVAC)

HFC-134a

1 430

HFO-1234yf

4

Aerosols

HFC-152a

124

HFO-1234ze

1

The total quantity of HFCs used (in CO2e) in each year, in compliance with the product-specific controls, was compared to the bulk import phase-down schedule to determine in which years further reductions in HFC use would be required to comply with the phase-down. In years in which modelled HFC use was greater than the bulk import quantity allowable by the phase-down, HFC use was reduced proportionately to production for each end-use in a quantity sufficient to meet the phase-down schedule.

There would be significant GHG emission reductions associated with the proposed Amendments. The cumulative incremental GHG emission reductions are estimated to be approximately 176 Mt CO2e over the time frame of analysis (2018–2040), a 32% decrease relative to the BAU scenario.

The Department’s central estimate of the social cost of carbon (SCC) was then used to estimate the monetized value of reducing CO2e emissions under the proposed Amendments. The SCC represents an estimate of the economic value of avoided climate change damages at the global level for current and future generations as a result of reducing CO2 emissions. The incremental GHG reductions (in tonnes) for each year were valued using annual SCC values (in 2015 dollars per tonne) over the time frame of analysis. These SCC values increase over time, from $44 in 2018 to $66 in 2040 per tonne of CO2e.

Table 3: GHG emission reductions (in Mt and in millions of dollars)

 

2018 to 2020

2021 to 2025

2026 to 2030

2031 to 2035

2036 to 2040

Incremental Total

GHG emission reductions (Mt CO2e)

1

11

29

54

80

176

Present value of GHG emission reductions — Central case SCC

51

452

1,112

1,916

2,683

6,213

Note: Totals may not sum due to rounding.

For the purposes of this analysis, emission reductions are quantified and monetized up to 2040. However, there would be emission reductions beyond 2040 attributable to industry actions with upfront costs incurred before 2040, as emissions occur throughout the useful life of HFCcontaining products. Thus, the emission reduction benefits are underestimated relative to the associated costs.

Canada has made commitments to reduce GHG emissions by 30% below 2005 levels by 2030 under the Paris Agreement. The Department estimates that annual emission reductions of 291 Mt CO2e will be required in 2030 to deliver on this commitment. GHG reductions from the proposed Amendments (8 Mt) would deliver a 3% contribution to Canada’s GHG emissions reduction target (291 Mt) under the Paris Agreement.

For the proposed Amendments, the cumulative GHG emission reductions between 2018 and 2030 are estimated to be 42 Mt CO2e (the values in Table 3 only add to 41 due to rounding). Without the proposed Amendments, annual GHG emissions from HFCs in Canada were projected to increase from 6 Mt CO2e in 2013 to 22 Mt in 2030. With the proposed Amendments, the GHG emission reductions in 2030 are expected to be 8 Mt, which would be a 35% decrease in forecasted GHG emissions from HFCs.

Costs (and cost savings)

In addition to GHG emission reductions, compliance with the proposed Amendments would lead to incremental costs and cost savings to industry. Adopting HFC alternatives would lead to changes in substance costs and, in some cases, capital costs to allow the use of these alternatives. These costs and cost savings are discussed below.

The proposed Amendments would phase down bulk imports of HFCs and control the use of HFCs in specific products that contain them, both reducing the supply of HFCs and restricting their use by product manufacturers. The analysis assumes that bulk importers would import HFC alternatives, and would pass on any costs or cost savings to manufacturers of HFC-containing products.

Using HFC alternatives may be more or less expensive than using HFCs, resulting in an operating cost or savings, and may require changes in products or equipment, resulting in a capital cost. Firms may be more willing to bear higher capital costs if they are able to choose HFC alternatives that yield an operating cost savings.

The key data sources for estimating compliance costs (and savings) are outlined below:

  • U.S. Environmental Protection Agency (EPA) — Economic impact screening analyses:
    • Economic Impact Screening Analysis for Regulatory Changes to the Listing Status of High-GWP Alternatives. Revised. July 2015;
    • Economic Impact Screening Analysis for Regulatory Changes to the Listing Status of High-GWP Alternatives used in Refrigeration and Air Conditioning, Foams, and Fire Suppression. March 2016;
    • EPA — Preliminary Cost Analysis for Regulatory Changes to the Listing Status of High-GWP Alternatives used in Refrigeration and Air Conditioning, Foams, and Fire Suppression. March 2016;
  • U.S. EPA — Global Mitigation of Non-CO2 Greenhouse Gases: 2010-2030. September 2013;
  • IHS Chemical — Chemical Economics Handbook: Fluorocarbons (543.7000) by Aida Jebens with Thomas Kalin, Yuko Yamaguchi and Yi (Eve) Zhang. February 2014: www.ihs.com/chemical;
  • Technology and Economic Assessment Panel (TEAP) Report — Montreal Protocol on Substances that Deplete the Ozone Layer, Volume 2. May 2012.

The analysis presents the cost impacts for each of the end-uses, which are grouped into four sectors: refrigeration and air conditioning, foams, mobile air conditioning, and aerosols. All U.S. prices are converted to Canadian dollars at a 2015 exchange rate. (see footnote 18)

Refrigeration and air-conditioning sector

Stand-alone refrigeration systems: Stand-alone refrigeration systems are self-contained systems generally used in supermarkets and convenience stores to refrigerate perishable foods, beverages and frozen foods. These systems use HFC refrigerants such as R-404a, R-407a, and HFC-134a (with global warming potentials between 1 430 and 3 922). New stand-alone refrigeration systems would be required to be manufactured and imported with refrigerants with global warming potentials below 650 or 1 500, by 2020, depending on the temperature of the system. In order to convert to R-290 (propane), manufacturers of stand-alone refrigeration equipment (five affected businesses) are expected to assume upfront capital costs of approximately $434,000. The increased costs are primarily related to the purchase of new equipment and the conversion of facilities to allow for the safe use of a flammable refrigerant. Cost savings would, however, be expected due to lower refrigerant costs. It is estimated the price of R-290 would be $5–7 per kilogram lower than the currently used HFCs with 240 000–340 000 kg of HFCs replaced in this end-use annually. It is expected manufacturers of stand-alone refrigeration systems would realize cost savings over the time frame of analysis of $24 million. Although it is possible that savings could be realized by end-users of these systems, these are not expected to be significant, and were thus not quantified in this analysis.

Centralized refrigeration systems: Centralized refrigeration systems are generally used for storing and displaying food, beverages, and other perishables in convenience stores and supermarkets. These systems use HFC refrigerants such as R-404a and R-407a (with global warming potentials between 2 107 and 3 922). New centralized refrigeration systems would be required to be manufactured to use refrigerants with global warming potentials below 1 500, by 2020. It is expected that refrigerant choices in the centralized refrigeration market are determined by end-users in the retail food and beverage sector (e.g. supermarkets). It is expected that the costs assumed during the manufacturing, assembly, and maintenance of these systems would be borne by these end-users.

Large supermarkets are expected to replace existing refrigeration systems using R-404a or R-407a refrigerants at the end-of-life of the system and new supermarkets would be built with new “transcritical” CO2 systems. It is expected that 4 900 supermarkets would install new CO2 systems at an estimated incremental capital cost of approximately $42,000 per system over the time frame of the analysis. The increased cost is attributable mainly to increased material costs of components (e.g. compressors, heat exchangers). Operating cost savings would be expected due to lower refrigerant costs. It is estimated the price of CO2 would be $13–15 per kilogram lower than currently used HFC refrigerants, with more than 3.1 million kilograms of HFCs being replaced annually by 2037, when all systems using HFCs are expected to have been retired.

Small supermarkets are expected to avoid capital costs by installing systems using HFO blends. Increased annual operating costs are expected to be assumed due to the higher price of HFO-blend refrigerants. It is estimated the refrigerant price difference would be $6–8 per kilogram, with more than 766 000 kg of HFCs being replaced annually by 2037, when all systems using HFCs are expected to have been retired.

It is expected large supermarkets would assume capital costs of $211 million and operating cost savings of $337 million, while small supermarkets would assume operating costs of $40 million. Total cost savings for the end-use would be $87 million.

Chillers: Chillers are generally used to provide airconditioning for large commercial buildings. These systems use HFC refrigerants such as R-407a, R-410a, and HFC-134a (with global warming potentials between 1 430 and 3 922). New chillers would be required to be manufactured using refrigerants with global warming potentials below 700, by 2025. Chiller manufacturers are expected to bear no capital costs as non-HFC R-450a is considered a near drop-in replacement for HFC-134a in centrifugal chillers and R-410a or R-404a in positive displacement chillers. Increased annual operating costs are expected to be borne due to the higher price of R-450a refrigerant. It is estimated refrigerant prices would be $6–8 per kilogram higher, with 800 000 kg of HFCs replaced in the end-use annually when all systems using HFCs have been retired. It is expected that manufacturers of chillers would assume costs of $21 million over the time frame of analysis. It is also expected that end-users of chillers would assume maintenance costs of $20 million due to increased refrigerant costs.

Mobile refrigeration systems: Mobile refrigeration systems are used to provide refrigeration during the shipping of food and beverage products (e.g. refrigerated trucks). These systems use HFC refrigerants such as R-404a (with a global warming potential of 3 922). New mobile refrigeration systems would be required to be manufactured using refrigerants with global warming potentials below 2 200, by 2025. Mobile refrigeration manufacturers are not expected to bear any capital costs as a result of the proposed Amendments, as R-450a is considered a near drop-in replacement for R-404a. Increased annual operating costs are expected to be assumed due to the higher price of R-450a refrigerant. It is estimated the refrigerant would be $6 per kilogram higher, with 31 000 to 42 000 kg of HFCs replaced in the end-use annually. It is expected manufacturers of mobile refrigeration systems would assume costs of $1.1 million over the time frame of analysis. It is also expected end-users of mobile refrigeration systems would assume maintenance costs of $1.1 million due to higher refrigerant costs.

Industrial refrigeration: Industrial refrigeration systems are used in large cold storage facilities used to store perishable goods. These systems use HFC refrigerants such as R-404a and R-407c (with global warming potentials between 1 774 and 3 922), in addition to ammonia, also known as R-717 (with a global warming potential of 0). The industrial refrigeration industry would not be subject to product-specific controls under the proposed Amendments. However, it is expected the end-use would be affected by the proposed bulk phase-down, as the reduction in available quantities of HFCs would cause manufacturers to transition to alternatives. It is assumed that facilities not using R-717 are unable to use this substitute for technical reasons. Increased operating costs are expected to be assumed due to the higher price of HFO blends, which are estimated to be $6–7 per kilogram higher than the HFC blends currently being used. There would be no associated capital costs as R-444b is considered a near drop-in replacement. It is expected manufacturers of industrial refrigeration systems would bear costs of $2.2 million over the time frame of analysis. As the impacts to this end-use occur in manufactured products post-2036, maintenance costs would be incurred after the time frame of analysis, and are thus not included.

Domestic air-conditioning: Domestic air conditioners are used in residential and small commercial buildings. These systems use HFC refrigerants such as R-410a (with a global warming potential of 2 088). The domestic air-conditioning industry would not be subject to product-specific controls under the proposed Amendments. However, it is expected the end-use would be affected by the proposed bulk phase-down, as the decrease in availability of refrigerants using HFCs is expected to cause manufacturers to transition to alternatives. Increased operating costs are expected to be assumed due to the higher price of non-HFC R-444b, which is estimated to be $7 per kilogram higher than R-410a. If all of these costs are passed on to consumers, the incremental cost for a homeowner with a typical air-conditioning unit would be $2–4. There would be no associated capital costs as R-448a and R-450a are considered near drop-in replacements. It is expected manufacturers of domestic air-conditioning systems would bear costs of $16 million over the time frame of analysis. As the impacts to this end-use occur in manufactured products post-2036, maintenance costs would be incurred after the time frame of analysis, and are thus not included.

Domestic refrigeration: There are no known domestic manufacturers of domestic refrigeration equipment. Therefore, it is expected that there would be no capital or operating costs borne. It is expected imported domestic refrigerators would use R-600a or R-450a, which would then need to be serviced domestically using those substances. However, as it assumed these substances would be used in the absence of the proposed Amendments, this was not considered in the analysis.

Table 4: Refrigeration and air-conditioning sector compliance costs (dollars)

End-use

BAU Scenario for HFC

Regulatory Alternative

Price Change ($ per kg)

Total Quantity Replaced (in kg)

Incremental Capital Cost ($ per Facility)

Total Cost (Savings)

Stand-alone refrigeration 

R-404a

R-290 (propane)

−7

3 054 000

434,000

(23,609,000)

R-407a

R-290 (propane)

−5

1 148 000

434,000

HFC-134a

R-290 (propane)

−6

1 845 000

434,000

Centralized refrigeration (large)

R-404a

R-744 (CO2)

−15

28 436 000

42,000

(87,194,000)

R-407a

R-744 (CO2)

−13

10 211 000

42,000

Centralized refrigeration (small) 

R-404a

R-448a

6

7 109 000

R-407a

R-448a

8

2 553 000

Chillers

HFC-134a

R-450a

8

5 216 000

41,177,000

R-404a

R-450a

6

2 837 000

R-410a

R-450a

7

1 556 000

Mobile refrigeration

R-404a

R-450a

6

586 000

2,558,000

Industrial refrigeration

R-404a

R-448a

6

314 000

2,168,000

R-407c

R-450a

7

263 000

Domestic A/C

R-410a

R-444b

7

4 534 000

15,735,000

Domestic refrigeration

(Not applicable)

Foam sector

Extruded polystyrene (XPS) foam: HFC-134a (with a global warming potential of 1 430) is used as a blowing agent in the manufacture of XPS foam used for wall, roof, and floor insulation. (see footnote 19) New XPS foam products would be required to be manufactured using blowing agents with global warming potentials below 150, by 2021. Manufacturers of XPS foam are expected to transition from HFC-134a to hydrocarbons. It is assumed that each manufacturer operates three production lines with an incremental capital cost of approximately $24,000,000 for each of two businesses. These costs are largely attributable to investment in new equipment and training to allow the safe use of flammable blowing agents. Operating cost savings due to the lower cost of hydrocarbon blowing agents would be expected. The estimated blowing agent price would be $13 per kilogram lower, with 1.6 million to 2.2 million kilograms of HFC-134a being replaced annually. It is expected that manufacturers of XPS foam products would realize cost savings of $169 million over the time frame of the analysis.

Rigid polyurethane (PU) foam: HFCs are used as blowing agents in rigid PU foam products in the manufacture of insulation products for appliances, pipes, and buildings. These products contain HFCs such as HFC-245fa and HFC-365mfc/227ea (with global warming potentials between 1 030 and 1 150). New rigid PU foam products would be required to be manufactured using blowing agents with global warming potentials below 150, by 2021. Rigid PU foam manufacturers are expected to bear one-time costs of approximately $260,000 for each of four facilities in order to transition to HFO-1234ze. These costs are attributable to formulation and compliance testing to ensure the necessary insulation properties of the resultant foam are attained. Operating costs due to the higher cost of the HFO-1234ze blowing agent would be expected. The estimated blowing agent price would be $6–8 per kilogram higher, with 1.5 million to 2.2 million kilograms of HFCs being replaced annually. It is expected that manufacturers of PU foam products would carry costs of $174 million over the time frame of the analysis.

Two-component PU spray foam: HFCs are used as a blowing agent in two-component PU spray foam products for the installation of wall, roof, and floor insulation. These products contain HFCs such as HFC-245fa and HFC-365mfc/227ea (with global warming potentials between 1 030 and 1 150). New two-component PU spray foam products would be required to be manufactured using blowing agents with global warming potentials below 150, by 2021. Manufacturers of two-component PU spray foam are expected to bear one-time costs of approximately $333,000 for each of four facilities in order to transition to HFO-1234ze. These costs are attributable to formulation and compliance testing to ensure the necessary insulation properties of the resultant foam are attained. Operating costs due to the higher cost of the HFO-1234ze blowing agent would be expected. The estimated blowing agent price would be $6–8 per kilogram higher, with 1.5 million to 2.2 million kilograms of HFCs being replaced annually. It is expected that manufacturers of twocomponent PU spray foam products would carry costs of $147 million over the time frame of the analysis.

One-component PU spray foam: There are no known manufacturers of one-component PU spray foam in Canada. Therefore, it is expected that there would be no capital or operating costs.

Table 5: Foam sector compliance costs (dollars)

End-use

BAU Scenario for HFC

Regulatory Alternative

Price Change ($ per kg)

Total Quantity Replaced (in kg)

Incremental Capital Cost ($ per Facility)

Total Cost (Savings)

XPS foam

HFC-134a

Hydrocarbons

-13

37 358 000

24,000,000

(169,228,000)

Rigid PU foam

HFC-245fa

HFO-1234ze

8

27 364 000

260,000

173,567,000

HFC-365mfc/227ea

HFO-1234ze

6

8 919 000

260,000

PU spray foam

HFC-245fa

HFO-1234ze

8

21 891 000

333,000

146,760,000

HFC-365mfc/227ea

HFO-1234ze

6

7 135 000

333,000

Other sectors

Motor vehicle air-conditioning: Motor vehicle air-conditioners typically contain HFC-134a (with a global warming potential of 1 430) as a refrigerant. New passenger automobiles would be required to contain refrigerants with global warming potentials below 150, starting with 2021 model year vehicles. There is expected to be a decrease in the supply of HFCs in 2019 due to the proposed phase-down, which could increase the adoption of HFO-1234yf in model year 2019 vehicles due to an increase in the price of HFCs. Although there would still be sufficient quantities of HFCs available, some manufacturers may choose to adopt alternatives instead. Given existing provisions in the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations, manufacturers are expected to have completely phased out HFCs by model year 2021. Thus, there would be no impacts beyond this model year. The estimated incremental cost of installing an HFO-1234yf air-conditioning unit is approximately $69 per vehicle, plus $8 per kilogram of refrigerant with 31 500 kg of HFC-134a being replaced. It is expected that manufacturers of passenger vehicles would carry costs of $2.2 million over the time frame of the analysis.

Aerosols: HFCs are used in aerosol products as propellants in a range of personal care, household, and cleaning products. These propellants include HFC-134a (with a global warming potential of 1 430) and HFC-152a (with a global warming potential of 124). New aerosol products would be required to be manufactured using propellants with global warming potentials below 150, by 2018. There is no known Canadian manufacturing of non-exempt aerosol products containing HFCs with global warming potentials beyond the threshold allowed by the proposed product-specific prohibition in Canada. However, there are manufacturers producing aerosol products with GWPs below the threshold. It is anticipated that the proposed phase-down would reduce the availability of HFC-152a, causing these manufacturers to transition to HFO-1234ze from HFC-152a as a propellant after 2036. HFO-1234ze is a near drop-in replacement for HFC-152a; therefore, no capital costs are expected. The estimated substance price would be $20 per kilogram higher, with 115 000–140 000 kg of HFCs being replaced annually post-2036. It is expected that manufacturers of aerosol products would carry costs of $6.8 million over the time frame of the analysis.

Table 6: Compliance costs for other sectors (dollars)

End-use

BAU Scenario for HFC

Regulatory Alternative

Price Change ($ per kg)

Total Quantity Replaced (in kg)

Incremental Capital Cost ($ per Facility)

Total Cost (Savings)

MVAC

HFC-134a

HFO-1234yf

8

32 000

69 (per vehicle)

$2,212,000

Aerosols

HFC-152a

HFO-1234ze

20

648 000

S6,844,000

Summary of industry compliance costs (and savings)

Capital costs were estimated at $258 million over the 2018–2040 time frame. In addition, the operating costs have been estimated at $427 million with operating cost savings of $575 million. Total net costs for industry are expected to be $110 million. Estimates of total industry capital and operating costs as well as cost savings are shown in Table 7 below.

Table 7: Industry capital and operating costs and savings (millions of dollars)

 

2018 to 2020

2021 to 2025

2026 to 2030

2031 to 2035

2036 to 2040

Incremental Total Costs

Capital costs

17

96

51

48

46

258

Operating costs

2

87

103

105

130

427

Total costs

19

183

154

153

177

685

Operating cost savings

(8)

(110)

(133)

(155)

(168)

(574)

Net costs (savings)

11

73

21

(2)

8

111

Note: Monetary values discounted to present value using a 3% discount rate. Totals may not sum due to rounding.

Many of the substances expected to replace HFCs are relatively new to the market. As production of these alternative substances increases, it is expected that prices will change over time. However, it is difficult to predict the magnitude or direction of these future price changes. For the purposes of this analysis, it is assumed current prices would remain constant over time.

After 2040, there would be some ongoing additional reformulation costs as alternatives continue to replace current HFCs as equipment is retired. However, GHG reduction benefits generated from the lower global warming potentials of the alternative substances would be expected to outweigh the associated costs.

Administrative costs to ensure compliance

Under the Regulations, there are both industry and government costs necessary to ensure compliance. Under the proposed Amendments, there would be some reduction in industry administrative costs and some additional government administrative costs to ensure compliance with the proposed Amendments.

Industry administrative cost savings

The proposed Amendments are expected to result in a small incremental net decrease in administrative costs of $21,000 as most importers of HFCs would be issued allowances based on historic consumption (i.e. manufactured, imported and exported HFCs) data, which was collected by the Department through a mandatory survey. Thus, they would no longer have to apply for permits under the proposed Amendments. As reporting requirements are already in place under the Regulations, the proposed Amendments would not impose a new administrative burden.

Government administrative costs

To ensure compliance with the proposed Amendments, there would be incremental federal government costs for regulatory compliance promotion and administration beginning in 2018. These costs were estimated to average $9,800 per year over a 22-year time frame. Additional incremental costs incurred for enforcement over the 2018 to 2040 time frame were estimated at $38,500 per year. The present value of these government costs for the 2018 to 2040 time frame was thus estimated at $0.77 million.

Table 8: Administrative cost impacts for industry and Government (dollars)

 

2018 to 2020

2021 to 2025

2026 to 2030

2031 to 2035

2036 to 2040

Incremental Total Costs

Industry administrative cost savings

(3,656)

(5,417)

(4,673)

(4,031)

(3,477)

(21,255)

Government administrative costs

139,151

195,011

168,219

145,107

125,170

772,658

Note: Monetary values discounted to present value using a 3% discount rate.

In the summary of benefits and costs (Table 9), the total industry administrative cost savings (0.021 million dollars) are included in industry cost savings (575 million dollars).

Non-monetized impacts

Health: Hydrocarbons, which generate volatile organic compound (VOC) emissions, are expected to be substitutes for some HFCs in the regulatory scenario. VOCs contribute to the formation of ground level ozone and particulate matter, which are the main constituents of smog. Smog is known to have adverse effects on human health and the environment. However, a U.S. EPA study on hydrocarbon refrigerant impacts on ground level ozone concluded that the impacts on health of these emissions were not significant. (see footnote 20) Thus, health impacts were not quantified or monetized for this analysis.

Safety: Hydrocarbons are flammable and precautions must be taken for safety reasons when they are in use. However, flammable refrigerants and foam blowing agents can be safely used in systems and products designed for them. Similarly, products can be safely manufactured with hydrocarbons, if the manufacturing facility is designed to meet safety standards. In cases where hydrocarbons are used in consumer products such as domestic appliances, the refrigerant charge sizes are sufficiently small to pose no safety risk.

The U.S. EPA has deemed hydrocarbon refrigerants and blowing agents to be acceptable for use under its SNAP program after extensive study to ensure flammability risks would not pose significant threats to safety. Furthermore, hydrocarbons have been safely used in the European Union (EU) and Japan since the early 2000s. (see footnote 21)

Energy efficiency benefit: Refrigeration and air-conditioning systems using HFOs have been shown to provide increased energy efficiency. (see footnote 22) Use of these systems would likely provide cost savings to industry and reductions in climate change impacts due to lower energy consumption. However, this has not been quantified and monetized due to the high uncertainty surrounding the quantification of these energy efficiency improvements.

Summary of benefits and costs

Between 2018 and 2040, the proposed Amendments are expected to result in cumulative GHG emission reductions from HFCs of about 176 Mt CO2e. Using the social cost of carbon (SCC), the benefits of these GHG reductions are valued at about $6,213 million. There are compliance costs to industry estimated at $685 million, which are expected to be partially offset with related cost savings of $573 million. The net benefit of the proposed Amendments is estimated at $6,102 million.

Table 9: Summary of benefits and costs (millions of dollars)

Monetized Impacts

2018 to 2020

2021 to 2025

2026 to 2030

2031 to 2035

2036 to 2040

Total

Societal benefits

Climate change benefits

51

452

1,112

1,916

2,683

6,213

Industry cost savings

8

110

133

155

168

574

Total benefits

59

562

1,245

2,070

2,851

6,787

Societal costs

Industry costs

19

183

154

153

177

685

Government administrative costs

0

0

0

0

0

1

Total costs

19

183

154

153

177

686

Societal net benefits

40

379

1,092

1,917

2,674

6,102

GHG reductions (Mt CO2e)

1

11

29

54

80

176

Non-quantified impacts:

  • negligible negative health impacts due to a slight increase in VOC emissions
  • negligible impacts on safety due to the flammability of certain HFC substitutes
  • positive environmental impacts and cost savings from the increased energy efficiency of the replacement refrigeration and air-conditioning systems

Notes: Values are rounded and shown as zero if less than 0.5; therefore, totals may not sum due to rounding. Monetized values are discounted to present value using a 3% discount rate.

As shown in the table above, the industry overall would see both operating costs of about $685 million and operating cost savings of about $573 million. The net cost expected to be borne by industry would be around $111 million. The potential for long-term cost savings is determined by a firm’s capacity to bear upfront capital costs. For example, supermarkets operated by large businesses are expected to invest in refrigeration systems that would lead to long-term savings due to lower refrigerant costs and energy efficiency gains. However, this option may not be feasible for smaller businesses operating under capital constraints.

The proposed Amendments are expected to achieve a 42 Mt CO2e cumulative reduction in GHG emission reductions by 2030, which would contribute to the fulfillment of Canada’s international commitments. To achieve these GHG emission reductions, industry is expected to bear compliance costs of $356 million, although there are also expected to be industry cost savings of $251 million over the same time frame (2018–2030). Overall, as indicated in Table 10, the anticipated GHG emission reductions would be achieved at a cost per tonne of $8, and a net cost per tonne of about $2.

Table 10: Cost per tonne of GHG emission reductions from HFCs (2018–2030)

Type of Cost per Tonne

Costs (Millions of Dollars)

GHG Emission Reductions (Mt of CO2e)

Cost per Tonne of GHG Emission Reductions from HFCs

Cost per tonne

356

42

8 dollars per tonne

Net cost per tonne

104

42

2 dollars per tonne

Note: Results may not sum due to rounding.

These costs-per-tonne results reflect industry costs and cost savings to reduce tonnes of GHG emissions from HFCs. These results do not account for when the emission reductions occur or the value society may place on the avoided damages.

Distributional impacts

The analysis was conducted from a national societal viewpoint, but incremental cost impacts may not be distributed uniformly, so the analysis also considered how these might affect industry sectors, industry competitiveness and consumer prices.

Impacts by sector: The compliance costs associated with the proposed Amendments would vary by sector. Costs are largely driven by the feasibility of various HFC alternatives for a given end-use, causing some sectors to bear higher costs. A breakdown of costs and savings by sector is presented below in Table 11.

Table 11: Annualized monetized impacts by sector (millions of dollars)

Sector

Total Costs

Total Cost Savings

Net Costs (Savings)

Annual Sales23 (2015)

Refrigeration and air conditioning

18

21

(3)

3,270

Foam

21

12

9

1,966

MVAC

0

0

58,203

Aerosols

0

0

Note: Annualized values calculated using a 3% discount rate. Totals in Aerosols and MVAC are shown as zero due to rounding.

It is expected that the foam sector would bear the most significant increase in costs due to the proposed Amendments; however, these costs constitute less than 1% of annual industry sales. Canadian foam manufacturers are located in Ontario and Quebec, while the North American foam sector is highly integrated, with multinational manufacturers operating in both Canada and the United States. In 2015, more than 75% of foam product exports (by value) were destined for the United States. (see footnote 23) Given similar regulatory measures in the United States, it is not anticipated Canadian foam manufacturers would be unduly affected by the proposed Amendments.

Competitiveness impacts: The proposed Amendments would apply to both domestic and imported products, thus imported products would have to comply with the same standards as products manufactured in Canada. In addition, the United States, the European Union, and Japan already have controls on HFCs in place, including restrictions on products that contain HFCs. More than 90% of total exports are to countries with similar regulatory measures already in place. (see footnote 24) The only major trading partner without regulatory measures in place is China, which accounted for less than 4% of total Canadian exports in 2015. Thus, minimal impacts on the international competitiveness of the Canadian industry are anticipated.

Consumer impacts: The annualized compliance costs imposed on industry by the proposed Amendments are estimated to be less than 1% of annual sales to end-users in the affected sectors in 2015. The extent to which the consumer product sectors are able to pass on the incremental costs to consumers through higher prices would determine the ultimate distribution of costs between manufacturers and consumers. Although some costs may be passed on to Canadian consumers, it is expected that these impacts would be negligible (less than 1%).

Sensitivity analyses

Several sensitivity analyses were conducted to assess the impact of uncertainty on the expected net benefits of the proposed Amendments. There is uncertainty regarding the correct choice of discount rate as TBS suggests either 3% or 7% for cost-benefit analyses. A sensitivity analysis was done to compare the central case (3%) to a higher discount rate (7%), which still yields an expected net benefit, as shown in Table 12.

Uncertainty is also associated with the values used to monetize the benefits from GHG reductions. The central SCC value used in this cost-benefit analysis may not fully capture potential low-probability, high-impact outcomes due to climate change. To address this concern, the Department publishes a 95th percentile SCC value for sensitivity analyses, which attempts to capture the costs associated with low-probability, high-impact outcomes, including potential catastrophic impacts of climate change.

It is also possible that costs are higher than estimated and benefits are lower than estimated, which would lower the estimated net benefits. Over the analysis time frame, estimated benefits were significantly greater than costs (a benefit-to-cost ratio of 10:1 in the central case). Thus, even if benefits were much smaller or costs much larger than estimated, there would still be an expected net benefit. The Department has typically considered uncertainty ranges 50% higher or lower than the central case. Sensitivity analyses were done to consider these scenarios, which still yield expected net benefits, as shown in Table 12 below.

Table 12: Sensitivity analyses (millions of dollars)

Alternate Impact Analysis Estimates

Benefits (B)

Costs (C)

Net Benefits (B – C)

Benefit-Cost Ratio (B/C)

Central case (from Table 9)

6,788

685

6,102

10:1

Benefits and costs discounted at 7% per year

3,568

413

3,155

9:1

Benefits valued using 95th percentile SCC

28,461

685

27,777

42:1

Costs 50% higher than central case estimate

6,788

1,028

5,760

6:1

Benefits 50% lower than central case

3,394

685

2,709

4:1

Costs 50% higher and benefits 50% lower

3,394

1,028

2,366

3:1

Note: Values discounted to present value using a 3% discount rate, except when a 7% rate is used.

In this analysis it is assumed that the impacts (benefits and costs) occur because regulatees would not change their behaviour and choose the identified GHG reduction strategies in the absence of the proposed Amendments. There would likely be some “natural adoption” of these GHG reduction strategies even without the proposed Amendments, particularly given that there are some expected co-benefits (cost savings). If an alternate BAU scenario had been proposed whereby more regulatees would have chosen these GHG reduction strategies voluntarily, then the estimated benefits and costs attributable to the proposed Amendments would be proportionally lower, which would still yield an expected net benefit.

“One-for-One” Rule

The proposed Amendments are considered to be an “OUT” under the Government of Canada’s “One-for-One” Rule. It is projected that the regulatory changes would result in a net decrease in annualized average administrative burden costs of around $1,100, or $60 per importer of bulk HFCs. (see footnote 25)

The proposed Amendments would reduce administrative burden by removing the requirement for regulatees to apply for permits to import and manufacture HFCs. Instead, allowances would be issued proactively under the Regulations and would serve as authorization to import and manufacture HFCs. It is assumed that companies currently applying for permits would save an average of two hours per year. It is estimated a total of 19 companies would apply for permits in the absence of the proposed Amendments. Annual reporting under the Regulations would continue to be required. However, this administrative cost is not considered additional to the proposed Amendments.

All other administrative requirements would remain the same as stipulated in the Regulations, and thus impose no additional administrative burden.

Small business lens

It is estimated that there are 66 manufacturers of products and bulk importers affected by the proposed Amendments. Of these, 8 manufacturers of products and 2 bulk importers are small businesses. The Department engaged in four consultations with industry stakeholders, including small businesses, to receive feedback after providing an initial policy proposal. Stakeholders were concerned with the early start dates and low global warming potential limits of this initial proposal, which was revised by the Department to include various regulatory flexibilities in the proposed Amendments.

The in-product controls were redesigned with start dates and global warming potential limits that provide sufficient transition times and various acceptable alternatives that would allow for investment decisions that are feasible for small businesses. Furthermore, the proposed allowance system was revised to allow small businesses that started importing HFCs after 2013 to maintain their share of the import market and continue importing HFCs after the phase-down is in place. The proposed Amendments would also reduce administrative burden for small businesses importing bulk HFCs by removing the requirement to apply for permits to import and manufacture HFCs.

The proposed Amendments would not provide additional flexibilities to small business, such as exceptions, for a variety of reasons. An exception for small business with respect to the proposed phase-down would allow small businesses to import larger quantities of bulk HFCs indefinitely, which would reduce the associated climate change mitigation benefits. Furthermore, exceptions for small businesses could encourage companies to split into smaller entities to avoid future compliance costs, which would create an unequal playing field domestically.

The revisions made to the proposed Amendments after consultation with industry are analyzed in the Regulatory Flexibility Analysis Statement below (Table 13). The initial option estimates the cost to small businesses of the proposed standards presented to industry during consultations in March 2015. The flexible option estimates the costs to small businesses under the proposed Amendments.

Table 13: Regulatory flexibility analysis statement

 

Initial option
(standards set based on 2015 proposed policy presented to stakeholders)

Flexible option
(standards set based on feedback received after consultation with industry, including small business)

Number of small businesses affected

10

10

 

Annualized value

Present value

Annualized value

Present value

Compliance costs

$1,272,300

$22,154,476

$1,146,771

$19,968,885

Administrative costs

$0

$0

−$178

−$2,927

Total costs

$1,272,300

$22,154,476

$1,146,602

$19,996,596

Total cost per small business

$127,230

$2,215,448

$114,660

$1,996,889

Risk considerations

No incremental risks exist under the initial option.

No incremental risks exist under the flexible option.

Note: The values in this table are calculated using 2015 Canadian dollars and an analytical time frame of 2018 to 2040.

The table above demonstrates the reduced cost impacts to small businesses due to the changes made to the proposed Amendments after industry consultation. The flexibilities incorporated into the proposed Amendments are estimated to result in a decrease in costs to small business of $2,185,591, or $218,559 per small business over a time frame of 2018 to 2040.

Consultation

Since the publication of a notice of intent to regulate HFCs in December 2014, stakeholders representing all sectors from both Canada and the United States have been actively engaged in consultations. Stakeholders include industry, environmental non-governmental organizations (ENGOs), other government departments, and industry and trade associations. Through constructive and productive dialogue with stakeholders, the advantages of a domestic approach that includes both a phase-down and product-specific controls to regulate HFCs, as described above, have been expressed.

The four rounds of consultations, which consisted of electronic and face-to-face meetings in 2015 and 2016, presented opportunities for stakeholders to provide information to the Department on the availability of technologies and implementation challenges of the proposed Amendments. The Department’s consultation documents were sent to over 150 stakeholders. Approximately 80 stakeholders participated in these consultations and over 150 sets of comments were received by the Department. Information and feedback from stakeholders have assisted the Department in proposing a phase-down and product-specific controls that would be achievable, effective, and timely.

Industry

Many stakeholders have stated that the phase-down schedule included in the domestic approach is necessary to allow market forces to determine the lowest cost path to achieve the required HFC reductions. Diminishing quantities of HFCs would drive the price of HFCs higher, making the cost of climate-friendly alternatives more attractive. At the same time, given that the phase-down component does not target specific types of HFCs, companies would be provided with the flexibility to choose the most cost-effective alternatives that best meet their needs.

Some stakeholders stressed the importance of ensuring that Canadian regulatory measures are aligned with U.S. regulations to avoid potential market disruption and trade restrictions, as the affected sectors are well integrated with the U.S. market. However, full Canada–United States regulatory alignment strictly based on product-specific controls at this stage would not provide stakeholders with the flexibility to choose the HFCs they want to eliminate based on the most cost-effective commercially available alternatives. The Canadian-specific approach does not strictly align product-specific controls with those of the United States; however, in the sectors where Canada is moving forward with such controls, the global warming potential limits and timing of the controls are aligned with those of the United States, to the extent possible, to minimize the potential for market disruption. The product-specific controls would enter into force at the same time or shortly after U.S. measures: a fact that was met with positive feedback from stakeholders. Other stakeholders have expressed a strong interest in a more flexible approach that is more in line with the approach used to phase out CFCs and HCFCs, which included both a bulk phase-down and product-specific controls. Therefore, they have indicated that absolute alignment with U.S. regulatory measures is not critical.

Non-governmental organizations

ENGOs have expressed support for the Canada-specific regulatory approach during stakeholder consultations and the need to move expeditiously to introduce measures to control HFCs. In particular, ENGOs welcomed the phase-down, as it provides a more comprehensive approach to controlling HFCs.

Provincial and territorial governments

The proposed Amendments would complement existing provincial and territorial measures, which aim to minimize and reduce HFC emissions from existing equipment but do not reduce HFC consumption and use. Provincial governments have generally expressed support for federal regulatory measures on HFCs.

Regulatory co-operation

At the October 2016 Meeting of the Parties to the Montreal Protocol in Kigali, Rwanda, the Parties adopted an amendment to the Montreal Protocol that would require the phase-down of HFC consumption and production. A domestic approach to regulating HFCs that includes a phase-down component was chosen, in part to put in place the domestic framework to ensure compliance with a global phase-down under the Montreal Protocol.

The proposed Amendments would also be consistent with Canada’s commitment in the March 2016 U.S.-Canada Joint Statement on Climate, Energy, and Arctic Leadership to take action to reduce HFC use and emissions. Introducing regulatory measures on HFCs in Canada that are more flexible but similar to those introduced in the United States, which prohibit the use of HFCs in specific end-use products, would ensure that alternatives with lower global-warming potentials are available in both markets almost simultaneously. It would also avoid the unintended consequences of imposing different requirements on Canadian and U.S. companies and would avoid the risk of Canada becoming a market for HFCs and HFC-containing products prohibited by other jurisdictions.

The proposed Amendments would not be fully aligned with current U.S. HFC regulatory measures, as the United States does not have the legislative authority to implement a phase-down of HFCs in the absence of an amendment to the Montreal Protocol. It is anticipated that a phase-down would now be implemented in the United States given that the HFC amendment to the Montreal Protocol was adopted in October 2016.

Rationale

GHG emissions, including HFCs and CO2, are contributing to a global warming trend that is associated with climate change. HFCs are powerful GHGs that have global warming potentials hundreds to thousands of times greater than that of CO2. Without immediate action, HFC emissions in Canada are projected to increase from 6 Mt per year of CO2e in 2013 to 22 Mt per year in 2030, which underlines the significant contribution of HFCs to global warming.

The proposed Amendments would implement both a phase-down of bulk HFCs and controls on specific products containing or designed to contain HFCs. This approach was used successfully to phase out ozone-depleting substances, such as CFCs and HCFCs. In addition, consultations with stakeholders, including industry, provincial and territorial governments, and environmental non-governmental organizations, confirmed support for the proposed approach.

The proposed Amendments would ensure that consumption of HFCs (in CO2e) is reduced by 70% from an established baseline level by 2030, and by 85% by 2036, causing manufacturers of products containing HFCs to adopt alternative substances with lower global warming potentials. It is expected that the proposed Amendments would lead to an 8 Mt reduction in CO2e emissions in 2030, an estimated 3% contribution to Canada’s GHG emissions reduction target under the Paris Agreement. In addition, Parties to the Montreal Protocol have agreed to work in 2016 toward an amendment to phase down the production and consumption of HFCs, and the proposed Amendments would put Canada in a position to ratify such an amendment.

Between 2018 and 2040, the proposed Amendments are expected to result in cumulative GHG emission reductions from HFCs of 176 Mt CO2e. Based on the social cost of carbon, the benefits of these GHG reductions are valued at about $6.2 billion. There are compliance costs to industry estimated at almost $700 million, which are expected to be partially offset by related cost savings of almost $600 million. The net benefits of the proposed Amendments are estimated to be more than $6 billion.

Strategic Environmental Assessment

The proposed Amendments have been developed under Canada’s Clean Air Regulatory Agenda (CARA). A strategic environmental assessment (SEA) was completed for CARA in 2012, and a public statement was issued in 2013. (see footnote 26) The SEA concluded that activities under CARA would support the Federal Sustainable Development Strategy (FSDS) climate change goal to reduce GHGs. An SEA has also been conducted for the proposed Amendments that confirms that this regulatory initiative supports the FSDS goal to reduce GHGs.

Implementation, enforcement and service standards

The proposed Amendments would come into force six months following the date on which they are published in the Canada Gazette, Part II. The proposed Amendments would be made under CEPA, so enforcement officers would, when verifying compliance, apply the Compliance and Enforcement Policy for CEPA. (see footnote 27)

The compliance promotion approach for the proposed Amendments would be similar to that taken for the Regulations, which includes developing compliance promotion material to explain provisions of the Regulations, maintaining a presence on the Department’s website and responding to inquiries from stakeholders. Furthermore, the Department would undertake outreach activities to raise stakeholder awareness of the new regulatory requirements.

The service standards relating to the issuance of permits for the import of ozone-depleting substances under the Regulations will continue to apply to the issuance of permits for the import of HFCs under the proposed Amendments, when permits are issued. The service standards for permits have been in place since April 1, 2014. (see footnote 28) Once the Department receives all of the information that is required for a permit to be approved, the permit is issued within 10 working days. This standard would be maintained for the issuance of permits under the proposed Amendments.

Performance measurement and evaluation

The proposed Amendments would be evaluated within the existing domestic performance measurement framework of the Ozone-depleting Substances and Halocarbon Alternatives Regulations. Specific indicators would be developed as part of the implementation strategy for the Regulations.

Quantitative indicators and targets, where applicable, would be defined for each outcome (immediate, intermediate, and final). Examples of performance indicators could include the reduction in reported quantities of HFCs that have been imported, exported or manufactured. The regulated community would continue to be required to submit annual reports on these quantities to the Department. The performance of the Regulations would be evaluated according to the program evaluation plan every five years.

Contacts

Nathalie Morin
Director
Chemical Production Division
Department of the Environment
351 Saint-Joseph Boulevard, 11th Floor
Gatineau, Quebec
K1A 0H3
Fax: 819-938-4218
Email: ec.gestionhalocarbures-halocarbonsmanagement.ec@canada.ca

Yves Bourassa
Director
Regulatory Analysis and Valuation Division
Department of the Environment
200 Sacré-Cœur Boulevard
Gatineau, Quebec
K1A 0H3
Fax: 819-938-3407
Email: ec.DARV.RAVD.ec@canada.ca

PROPOSED REGULATORY TEXT

Notice is given, pursuant to subsection 332(1) (see footnote a) of the Canadian Environmental Protection Act, 1999 (see footnote b), that the Governor in Council, pursuant to subsection 93(1) of that Act, proposes to make the annexed Regulations Amending the Ozone-depleting Substances and Halocarbon Alternatives Regulations.

Any person may, within 75 days after the date of publication of this notice, file with the Minister of the Environment comments with respect to the proposed Regulations or, within 60 days after that date, file with the Minister a notice of objection requesting that a board of review be established under section 333 of that Act and stating the reasons for the objection. All comments and notices must cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to the Director, Chemical Production Division, Department of the Environment, Ottawa, Ontario K1A 0H3.

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

Ottawa, November 17, 2016

Jurica Čapkun
Assistant Clerk of the Privy Council

Regulations Amending the Ozone-depleting Substances and Halocarbon Alternatives Regulations

Amendments

1 Subsection 34(1) of the English version of the Ozone-depleting Substances and Halocarbon Alternatives Regulations (see footnote 29) is amended by striking out “or” at the end of paragraph (b) and by replacing paragraph (c) with the following:

  • (c) its use as feedstock; or
  • (d) any other purpose that complies with the laws of the importing Party.

2 Paragraph 42(3)(a) of the French version of the Regulations is replaced by the following:

  • a) aux soins des personnes ou des animaux, y compris les dilatateurs de bronches, les stéroïdes pris par inhalation, les anesthésiques topiques et les vaporisateurs de poudre utilisée en médecine vétérinaire sur les blessures;

3 The heading before section 55 of the Regulations is replaced by the following:

Consumption Allowances for HCFCs

4 Subsection 56(2) of the Regulations is replaced by the following:

Calculated level of consumption

(2) The calculated level of consumption for an HCFC — excluding a recovered, recycled or reclaimed HCFC that is imported or exported — that is manufactured, imported or exported during a calendar year must be determined using the following formula:

(M × ODP) + (I × ODP) − (E × ODP) − (Di × ODP)

where

M is the quantity manufactured during the calendar year, other than the quantity manufactured for use as feedstock;

ODP is the ozone-depleting potential set out in column 2 of Table 3 of Schedule 1 for the HCFC in question;

I is the quantity imported during the calendar year;

E is the quantity exported during the calendar year; and

Diis the quantity imported during the calendar year for destruction under paragraph 54(1)(a).

5 The heading before section 60 of the Regulations is replaced by the following:

Manufacturing Allowance for HCFCs

6 Subsection 60(2) of the Regulations is replaced by the following:

Greater manufacturing allowance

(2) When it is necessary to allow Canada to fulfill its obligations under an agreement with a Party for the purpose of industrial rationalization or to satisfy domestic HCFC needs, the Minister may permit, for a calendar year, a greater manufacturing allowance than that which a person would have obtained under subsection (1), and that greater manufacturing allowance is not taken into account in any subsequent calculation of the annual manufacturing allowance.

Written notice

(3) The Minister must inform the person in writing of their manufacturing allowance.

7 Subsection 61(2) of the Regulations is replaced by the following:

Calculated level of manufacture

(2) The calculated level of manufacture for an HCFC must be determined using the following formula:

(M × ODP) − (Dm × ODP)

where

M is the quantity manufactured during the calendar year, other than the quantity manufactured for use as feedstock;

ODP is the ozone-depleting potential set out in column 2 of Table 3 of Schedule 1 for the HCFC in question; and

Dmis the quantity manufactured during the calendar year for destruction under paragraph 54(1)(a).

8 Section 62 of the Regulations is repealed.

9 Sections 64 and 65 of the Regulations are replaced by the following:

Prohibition — importing HFCs without permit

64 It is prohibited for any person to import an HFC set out in Table 4 of Schedule 1 without a permit issued under these Regulations.

Purpose of importing

64.1 (1) The permit may only be issued to import an HFC for one of the following purposes:

  • (a) its destruction;
  • (b) its use as feedstock; or
  • (c) a use for which a substance set out in Tables 1 to 3 of Schedule 1 has been used in Canada.

Importing regardless of purpose

(2) A permit may also be issued to import, regardless of purpose, an HFC that is recovered, recycled or reclaimed.

Exception — consumption allowance

64.2 Section 64 does not apply to a person who is granted a consumption allowance for an HFC or a transferee of a consumption allowance for an HFC.

Refillable container

64.3 Any HFC that is imported for use as a refrigerant must be stored in a refillable container.

Importing Products Containing HFCs

Prohibition — importing certain products containing HFCs used as refrigerants

64.4 (1) As of the date indicated in column 3 of Schedule 1.1, it is prohibited for any person to import any product set out in that schedule that contains or is designed to contain an HFC set out in Table 4 of Schedule 1 and used as a refrigerant, if the global warming potential of the refrigerant used in that product is greater than the specified limit in Schedule 1.1.

Automobiles — 2021 and subsequent model years

(2) Beginning with the 2021 model year, it is prohibited for any person to import an automobile equipped with an air-conditioning system that contains or is designed to contain an HFC set out in Table 4 of Schedule 1 and used as a refrigerant, if the global warming potential of the refrigerant used in that system is greater than 150.

Plastic foam

64.5 (1) As of January 1, 2019, it is prohibited for any person to import a plastic foam in which an HFC set out in Table 4 of Schedule 1 is used as a foaming agent, if the global warming potential of the foaming agent is greater than 150.

One-component rigid foam products

(2) As of January 1, 2019, it is prohibited for any person to import a one-component closed-cell polyurethane rigid foam product that is sprayed and in which an HFC set out in Table 4 of Schedule 1 is used as a foaming agent, if the global warming potential of the foaming agent is greater than 150.

Rigid foam products

(3) As of January 1, 2021, it is prohibited for any person to import a rigid foam product in which an HFC set out in Table 4 of Schedule 1 is used as a foaming agent, if the global warming potential of the foaming agent is greater than 150.

Pressurized containers — 2 kg or less of HFC

64.6 (1) As of January 1, 2018, it is prohibited for any person to import a pressurized container that contains 2 kg or less of any HFC, if the global warming potential of that HFC is greater than 150.

Exceptions — miscellaneous products

(2) Subsection (1) does not apply to pressurized containers containing

  • (a) a mould release agent;
  • (b) a spinneret lubricant or cleaning agent used in the manufacture of synthetic fibers;
  • (c) a document preservation agent;
  • (d) a lubricant or cleaning agent for electrical equipment or electronic components;
  • (e) a duster agent used on photographic negatives and semiconductor chips;
  • (f) a lubricant or cleaning agent for aircraft maintenance;
  • (g) a pesticide used near electrical wires, in aircraft, or a certified organic-use pesticide;
  • (h) a stench gas used in mines; or
  • (i) a cooling agent used for testing electronics and electro-mechanical systems.

Exception — health care products and laboratory or analytical use

(3) Subsection (1) does not apply to a pressurized container containing a product that is intended

  • (a) for use in animal or human health care, including a bronchial dilator, inhalable steroid, topical anaesthetic, bandage adhesive remover and veterinary wound powder spray; or
  • (b) for a laboratory or analytical use.
Manufacture of HFCs

Prohibition — manufacture of HFCs without permit

65 It is prohibited for any person to manufacture an HFC set out in Table 4 of Schedule 1 without a permit issued under these Regulations.

Purpose of manufacture

65.01 The permit may only be issued to manufacture an HFC to be used as feedstock.

Prohibition — manufacturing products containing HFCs used as refrigerants

65.02 (1) As of the date indicated in column 3 of Schedule 1.1, it is prohibited for any person to manufacture any product set out in that schedule that contains or is designed to contain an HFC set out in Table 4 of Schedule 1 and used as a refrigerant, if the global warming potential of the refrigerant used in that product is greater than the limit specified in Schedule 1.1.

Automobiles — 2021 and subsequent model years

(2) Beginning with the 2021 model year, it is prohibited for any person to manufacture an automobile equipped with an air-conditioning system that contains or is designed to contain an HFC set out in Table 4 of Schedule 1 and used as a refrigerant, if the global warming potential of the refrigerant used in that system is greater than 150.

Plastic foam

65.03 (1) As of January 1, 2019, it is prohibited for any person to manufacture a plastic foam in which an HFC set out in Table 4 of Schedule 1 is used as a foaming agent, if the global warming potential of the foaming agent is greater than 150.

One-component rigid foam products

(2) As of January 1, 2019, it is prohibited for any person to manufacture a one-component closed-cell polyurethane rigid foam product which is sprayed and in which an HFC set out in Table 4 of Schedule 1 is used as a foaming agent, if the global warming potential of the foaming agent is greater than 150.

Rigid foam products

(3) As of January 1, 2021, it is prohibited for any person to manufacture a rigid foam product in which an HFC set out in Table 4 of Schedule 1 is used as a foaming agent, if the global warming potential of the foaming agent is greater than 150.

Pressurized containers — 2 kg or less of an HFC

65.04 (1) As of January 1, 2018, it is prohibited for any person to manufacture a pressurized container that contains 2 kg or less of any HFC, if the global warming potential of that HFC is greater than 150.

Exception — miscellaneous products

(2) Subsection (1) does not apply to the pressurized containers referred to in subsections 64.6(2) and (3).

Destruction of HFCs

HCF no longer needed

65.05 A person in possession of an HCF set out in Table 4 of Schedule 1 that was imported or manufactured under a permit issued under these Regulations and that is no longer needed for the use set out in that permit must, within six months after the day on which it is no longer needed,

  • (a) ensure that it is sent for destruction to a facility referred to in paragraph 12(c);
  • (b) ensure that it is exported for destruction, for use as feedstock or for a laboratory or analytical use; or
  • (c) in the case of a recovered, recycled or reclaimed HCF, ensure that it is sent to a recycling or reclamation facility.
Consumption Allowance for HFCs

Calculation of consumption allowance for HFCs

65.06 (1) The annual consumption allowance for an HCF set out in Table 4 of Schedule 1 to which a person is entitled is determined as follows:

  • (a) for each calendar year that falls within the period that begins on January 1, 2019 and ends on December 31, 2023, by multiplying the base consumption granted to that person by 90%;
  • (b) for each calendar year that falls within the period that begins on January 1, 2024 and ends on December 31, 2029, by multiplying the base consumption granted to that person by 65%;
  • (c) for each calendar year that falls within the period that begins on January 1, 2030 and ends on December 31, 2035, by multiplying the base consumption granted to that person by 30%; and
  • (d) as of January 1, 2036, by multiplying the base consumption granted to that person by 15%.

Calculation of base consumption

(2) The base consumption granted to a person is determined as follows:

C ⁄ D × E

where

C is the person’s average HFC consumption for 2014 and 2015 expressed in millions of tonnes of CO2 equivalent;

D is the average Canadian HFC consumption for 2014 and 2015 expressed in millions of tonnes of CO2 equivalent; and

E is 18.27 expressed in millions of tonnes of CO2 equivalent.

Permanent or temporary transfer

(3) If a transfer of a portion of the consumption allowance is approved in accordance with subsection 65.08(4), the transferred portion is subtracted from or added to the person’s annual consumption allowance, as the case may be,

  • (a) in the case of a permanent transfer, for every calendar year following the year of the transfer; or
  • (b) in the case of a temporary transfer, for the calendar year of the transfer.

Written notice

(4) The Minister must inform the person in writing of their consumption allowance.

Annual consumption allowance for HFCs not to be exceeded

65.07 (1) A person who is granted an annual consumption allowance must ensure that it is not exceeded by determining their calculated level of consumption for each HFC for a calendar year, and then adding together all of their calculated levels of consumption.

Calculated level of consumption

(2) The calculated level of consumption for an HFC — excluding a recovered, recycled or reclaimed HFC that is imported or exported — that is manufactured, imported or exported during a calendar year must be determined using the following formula:

(M × GWP) + (I × GWP) − (E × GWP)

where

M is the quantity manufactured during the calendar year, other than the quantity manufactured for use as feedstock;

GWP is the global warming potential of the HFC;

I is the quantity imported during the calendar year; and

E is the quantity exported during the calendar year.

Prohibition to transfer without authorization

65.08 (1) It is prohibited for any person to transfer all or a portion of their annual consumption allowance of HFCs unless the Minister approves the transfer under subsection (4).

Transfer may be temporary or permanent

(2) A transfer is temporary if it applies to only one calendar year, and it is permanent if it applies to all calendar years.

Application to Minister

(3) The transferor and transferee must submit an application to the Minister for the transfer containing the information required by Schedule 4 and specifying whether the proposed transfer is temporary or permanent.

Conditions

(4) The Minister must allow the transfer if the transferor has an unused consumption allowance that is not less than the quantity of the proposed transfer.

Written notice

(5) The Minister must inform the transferor and transferee in writing of the decision concerning the application for a transfer and of their consumption allowances.

Grounds for refusal and cancellation

65.09 (1) The Minister may refuse to allow or may cancel a transfer if the Minister has reasonable grounds to believe that the transferee is not able to manufacture, use, sell, import or export an HFC in compliance with Canadian law.

Effect of cancellation

(2) If the Minister cancels a transfer, the transferee must, without delay, transfer back to the transferor any unused portion of the consumption allowance.

Retirement of consumption allowances

65.1 (1) A person may retire their consumption allowance by providing the Minister with a notice in writing to that effect containing the information required by Schedule 4.

Effect of retirement

(2) A person who has retired their consumption allowance is not entitled to any further consumption allowance.

10 Subsection 66(1) of the Regulations is replaced by the following:

Exceptions — essential purpose

66 (1) Despite subsection 13(1), sections 15 and 17, subsection 19(1), sections 40 and 41, subsections 42(1) and 43(1), sections 48 and 49, subsection 50(1), section 51, subsection 53(1), sections 64.4 and 64.5, subsection 64.6(1), sections 65.02 and 65.03 and subsection 65.04(1), a person may import, manufacture, use or sell a substance set out in Table 1, 3 or 4 of Schedule 1 or a product containing or designed to contain that substance if the substance or product will be used for an essential purpose and if a permit is specifically issued under these Regulations for that purpose.

11 Schedule 1 to the Regulations is amended by replacing the references after the heading “SCHEDULE 1” with the following:

(Paragraph 3(a), section 5, paragraph 6(1)(c), section 8, subsection 9(1), section 10, paragraph 11(1)(b), subsection 13(1), sections 14 to 18, subsection 19(1), paragraphs 19(2)(b), 22(c), 24(b) and 32(b), sections 33, 35 and 36, paragraph 37(1)(b), section 41, subsections 42(1) and 43(1), sections 44, 45 and 49, subsection 50(1), sections 51 and 52, subsections 53(1), 54(1), 55(1), 56(2), 60(1) and 61(2), sections 63 and 64, paragraph 64.1(1)(c), sections 64.4, 64.5, 65, 65.02, 65.03 and 65.05 and subsections 65.06(1), 66(1) and 75(2))

12 Table 4 of Schedule 1 to the Regulations is replaced by the following:

TABLE 4
Part 4 Substances

Item

Column 1


Substances

Column 2

Global Warming Potential (GWP)

1

HFCs:

 
 

(a) Trifluoromethane (HFC-23)

14 800

 

(b) Difluoromethane (HFC-32)

675

 

(c) Fluoromethane (HFC-41)

92

 

(d) 1,1,1,2,2-pentafluoroethane (HFC-125)

3 500

 

(e) 1,1,2,2-tetrafluoroethane (HFC-134)

1 100

 

(f) 1,1,1,2-tetrafluoroethane (HFC-134a)

1 430

 

(g) 1,1,2-trifluoroethane (HFC-143)

353

 

(h) 1,1,1-trifluoroethane (HFC-143a)

4 470

 

(i) 1,2-difluoroethane (HFC-152)

53

 

(j) 1,1-difluoroethane (HFC-152a)

124

 

(k) Fluoroethane (HFC-161)

12

 

(l) 1,1,1,2,3,3,3-heptafluoropropane (HFC-227ea)

3 220

 

(m) 1,1,1,2,2,3-hexafluoropropane (HFC-236cb)

1 340

 

(n) 1,1,1,2,3,3-hexafluoropropane (HFC-236ea)

1 370

 

(o) 1,1,1,3,3,3-hexafluoropropane (HFC-236fa)

9 810

 

(p) 1,1,2,2,3-pentafluoropropane (HFC-245ca)

693

 

(q) 1,1,1,3,3-pentafluoropropane (HFC-245fa)

1 030

 

(r) 1,1,1,3,3-pentafluorobutane (HFC-365mfc)

794

 

(s) 1,1,1,2,2,3,4,5,5,5-decafluoropentane (HFC-43-10mee)

1 640

2

HFCs other than those set out in item 1

13 The Regulations are amended by adding, after Schedule 1, the Schedule 1.1 set out in the schedule to these Regulations.

14 Schedule 4 to the Regulations is amended by replacing the references after the heading “SCHEDULE 4” with the following:

(Subsections 57(3), 59(1), 65.08(3) and 65.1(1))

15 The heading of Schedule 4 to the Regulations is replaced by the following:

Application for a Transfer of a Consumption Allowance for HCFCs or HFCs and Notice Retiring an Allowance — Information Required

16 Subparagraph 1(b)(ii) of Schedule 4 to the Regulations is replaced by the following:

  • (ii) the quantity of HCFCs or HFCs to be transferred.

Coming into Force

180 days after publication

17 These Regulations come into force on the 180th day after the day on which they are published in the Canada Gazette, Part II.

SCHEDULE
(section 13)

SCHEDULE 1.1

(subsections 64.4(1) and 65.02(1))

Products Containing or Designed to Contain an HFC Used as a Refrigerant

Item

Column 1







Product

Column 2







Use

Column 3







Date

Column 4

Global Warming Potential (GWP) of Refrigerant Used in Product

1

stand-alone medium-temperature refrigeration system: self-contained refrigeration system where the components are integrated within the structure of the system and the system is designed to maintain an internal temperature ≥ 0°C

Commercial or industrial

January 1, 2020

700

Residential

January 1, 2025

150

2

stand-alone low-temperature refrigeration system: self-contained refrigeration system where the components are integrated within the structure of the system and the system is designed to maintain an internal temperature of less than 0°C but not less than -50°C

Commercial or industrial

January 1, 2020

1 500

Residential

January 1, 2025

150

3

centralized refrigeration system: refrigeration system whose capacity is > 20 kW, operating with more than one compressor installed in a separate machinery room, with a refrigerant that circulates from the machinery room to the refrigerated area and is designed to maintain an internal temperature ≥ -50°C

Commercial or industrial

January 1, 2020

1 500

4

condensing unit: refrigeration system whose capacity is ≤ 20 kW operating with one or two compressors installed in a separate machinery room, with a refrigerant that circulates from the machinery room to the refrigerated area and is designed to maintain an internal temperature ≥ -50°C

Commercial or industrial

January 1, 2020

2 200

5

chiller: air-conditioning system that has a compressor, an evaporator and a secondary coolant, other than an absorption chiller

Commercial or industrial

January 1, 2025

700

6

mobile refrigeration system: refrigeration system that is installed in, or normally operates in or in conjunction with, or is attached to a mean of transportation

Commercial or industrial

January 1, 2025

2 200

[48-1-o]

  • Footnote 1
    For the purposes of the proposed Amendments, consumption is defined as the sum of substances imported plus substances manufactured minus substances exported.
  • Footnote 2
    Intergovernmental Panel on Climate Change (IPCC), Fourth Assessment Report: Climate Change 2007 (AR4). Available at http://www.ipcc.ch/publications_and_data/ar4/syr/en/contents.html.
  • Footnote 3
    Environment and Climate Change Canada, Facts on Climate Change: http://www.climatechange.gc.ca/default.asp?lang=En&n=F2DB1FBE-1.
  • Footnote 4
    The Department of the Environment’s National Inventory Report estimates emissions from HFCs based on studies commissioned by the Department, consistent with IPCC guidelines. See “Benefits and costs” section for more details. The 2014 report submitted to the United Nations Framework Convention on Climate Change can be found at https://www.ec.gc.ca/ges-ghg/default.asp?lang=En&n=83A34A7A-1.
  • Footnote 5
    Notice of intent to regulate hydrofluorocarbons published by the Department of the Environment on December 6, 2014, in Part I of the Canada Gazette: http://www.gazette.gc.ca/rp-pr/p1/2014/2014-12-06/html/notice-avis-eng.php.
  • Footnote 6
    Canada’s INDC submission to the UNFCCC (2015): http://www4.unfccc.int/submissions/INDC/Published%20Documents/Canada/1/INDC%20-%20Canada%20-%20English.pdf.
  • Footnote 7
    Canada’s Second Biennial Report on Climate Change (2016): https://www.ec.gc.ca/GES-GHG/default.asp?lang=En&n=02D095CB-1.
  • Footnote 8
    U.S.-Canada Joint Statement on Climate, Energy, and Arctic Leadership: http://pm.gc.ca/eng/news/2016/03/10/us-canada-joint-statement-climate-energy-and-arctic-leadership.
  • Footnote 9
    See the Canada Gazette, Part II, June 29, 2016.
  • Footnote 10
    Canada’s Second Biennial Report on Climate Change.
  • Footnote 11
    Regulations Designating Regulatory Provisions for Purposes of Enforcement (Canadian Environmental Protection Act, 1999), Canada Gazette, Part I.
  • Footnote 12
    Although the Ozone-depleting Substances and Halocarbon Alternatives Regulations use the term exception, the Ozone-depleting Substances Regulations, 1998 refers to such exceptions as exemptions.
  • Footnote 13
    TBS Canadian Cost-Benefit Analysis Guide can be found at http://www.tbs-sct.gc.ca/rtrap-parfa/analys/analystb-eng.asp.
  • Footnote 14
    Global warming potential is a relative measure of how much heat a greenhouse gas traps in the atmosphere relative to carbon dioxide (whose global warming potential is standardized to 1). A global warming potential is presented over a specific time interval, in this case 100 years, and represents the total energy absorbed over the interval relative to carbon dioxide. U.S. EPA, Understanding Global Warming Potentials: https://www.epa.gov/ghgemissions/understanding-global-warming-potentials.
  • Footnote 15
    The Department of the Environment’s National Inventory Report 1990–2014 provides an inventory of historical GHG emissions in Canada: http://www.publications.gc.ca/site/eng/9.506002/publication.html.
  • Footnote 16
    Canada’s Second Biennial Report submission to the United Nations Framework Convention on Climate Change (UNFCCC) projects future emissions of greenhouse gases up to 2030: https://www.ec.gc.ca/GES-GHG/default.asp?lang=En&n=02D095CB-1.
  • Footnote 17
    The global warming potential for each substance is available in the Intergovernmental Panel on Climate Change’s Fourth Assessment Report — Errata (2012): http://www.ipcc.ch/publications_and_data/ar4/wg1/en/errataserrata-errata.html.
  • Footnote 18
    The exchange rate used is 1.00 USD = 1.28 CAD.
  • Footnote 19
    A blowing agent is used in foam manufacturing to produce a cellular structure in the foam product.
  • Footnote 20
    Assessment of the Potential Impact of Hydrocarbon Refrigerants on Ground Level Ozone Concentrations, February 2014, and Follow-on Assessment of the Potential Impact of Hydrocarbon Refrigerants on Ground Level Ozone Concentrations, March 2016: https://www.regulations.gov/document?D=EPA-HQ-OAR-2015-0663-0030.
  • Footnote 21
    European Union, “Climate-friendly alternatives to HFCs and HCFCs”: http://ec.europa.eu/clima/policies/f-gas/alternatives/index_en.htm.
  • Footnote 22
    Low-GWP Alternatives in Commercial Refrigeration: Propane, CO2 and HFO Case Studies: http://www.ccacoalition.org/en/resources/low-gwp-alternatives-commercial-refrigeration-propane-co2-and-hfo-case-studies.
  • Footnote 23
    Innovation, Science, and Economic Development Canada, Trade Data Online: https://www.ic.gc.ca/app/scr/tdst/tdo/crtr.html?&productType=HS6&lang=eng.
  • Footnote 24
    These include the United States, Japan, and EU countries.
  • Footnote 25
    As per the Red Tape Reduction Regulations, these values are calculated using a 10-year time frame, discounted at 7% in 2012 dollars. The non-rounded decrease in administrative costs was estimated at $1,095, or $58 per importer. The wage rate was assumed to be around $45 per hour in all cost calculations (weighted hourly average).
  • Footnote 26
    http://www.ec.gc.ca/ee-ea/default.asp?lang=en&n=4F7D3B45-1
  • Footnote 27
    The Department’s Compliance and Enforcement Policy is available at www.ec.gc.ca/alef-ewe/default.asp?lang=en&n=AF0C5063-1.
  • Footnote 28
    http://www.ec.gc.ca/default.asp?lang=En&n=2019647B-1
  • Footnote 29
    SOR/2016-137
  • Footnote a
    S.C. 2004, c. 15, s. 31
  • Footnote b
    S.C. 1999, c. 33