6. Proposed Path Forward for Canada

• 6.1 Policy of Alignment with US
• 6.2 Scope of Covered Motorcycles
• 6.3 Provisions for Corporate Fleet Emission Averaging
• 6.4 Provisions for Small-Volume Manufacturers
• 6.5 Option to Use Engine Certified to Non-Road Emission Standards
• 6.6 Exemptions for Specified Limited Cases
• 6.7 World Harmonized Emission Test Cycle

The On-Road Vehicle and Engine Emission Regulations are intended to align with the emission standards of the U.S. Environmental Protection Agency (U.S. EPA), consistent with the policy set out in the Federal Agenda on Cleaner Vehicles, Engines and Fuels. As outlined more fully in those documents, this approach provides Canadians with major improvements in emission control at a low additional cost. Continued alignment with the new U.S. emission standards for on-road motorcycles will result in important emission reductions from this class of vehicle in Canada.

The current On-Road Vehicle and Engine Emission Regulations incorporate the U.S. technical emission standards by reference to the U.S. Code of Federal Regulations for a given model year of vehicle. This approach seeks, to the extent possible, to ensure that the specified emission standards remain identical in both countries. Accordingly, EPA's emission standards for 2006 and later model year on-road motorcycles are automatically incorporated under the existing Regulations.

However, the EPA rules introduce some new elements in both the application and structure of motorcycle emissions standards which must be addressed in the Canadian Regulations. Firstly, the scope of motorcycles subject to on-road emission standards is broadened to include those with an engine displacement under 50 cc. Secondly, they introduce new compliance-related flexibilities that are not addressed under the current On-Road Vehicle and Engine Emission Regulations, including:

• the option to base compliance on corporate emission averaging
• special provisions for small-volume manufacturers
• the option to use engines certified to non-road emission standards
• exemptions for specified limited cases

The current Regulations enable a company to base its evidence of conformity with the Regulations on the certificate of conformity issued by the U.S. EPA. Given that the majority of motorcycles marketed in Canada fall in this category, the structure of the existing Canadian Regulations is not expected to have a major effect on the marketability of motorcycles in Canada. However, the absence of such flexibilities could, in some cases, result in more restrictive requirements for models of motorcycles that may be sold in Canada but not in the U.S.

Environment Canada plans to amend the On-Road Vehicle and Engine Emission Regulations to ensure that the emission standards apply to the same scope of motorcycles as in the U.S. and to provide companies with comparable compliance- related flexibilities, subject to the authorities under the Canadian Environmental Protection Act, 1999. It is intended that these changes would be effective for the 2006 model year, as in the U.S.

The following sections outline Environment Canada's proposed approach to amending the On-Road Vehicle and Engine Emission Regulations to maintain alignment with U.S. motorcycle emission standards.

Environment Canada plans to amend the definition of "motorcycle" under the On-Road Vehicle and Engine Emission Regulations to remove the current exclusions for vehicles that have an engine displacement of less than 50 cc and vehicles that cannot start from a dead stop using only the engine.

An appropriate regulatory framework to address emissions averaging would provide similar compliance flexibilities as in the U.S. and would remove the opportunity for individual companies to systematically sell a significant number of higher emitting vehicles in Canada than would be allowed in the United States. This is important to provide assurance that the long-term environmental performance of the Canadian motorcycle fleet will be comparable with that of the U.S.

Environment Canada plans to amend the On-Road Vehicle and Engine Emission Regulations to provide companies the option of complying with prescribed motorcycle emission standards on the basis of annual corporate fleet emission averaging. The existing Canadian framework for emissions averaging for fleets of new light-duty vehicles and light-duty trucks provides a model to adapt similar flexibilities to the Canadian market within the North American market.

The vast majority of motorcycles sold in Canada are vehicles designed for and marketed in the U.S. and Canada represents about 8% of the Canada/U.S. market. Where a vehicle sold in Canada has an equivalent sold in the U.S., the Regulations require that the Canadian vehicle comply with the same emission standards as the equivalent vehicle sold in the U.S. Accordingly, a company's fleet average value in Canada, in respect of the vehicles that it sells concurrently in both countries will be "anchored" to the U.S. fleet average value and there should be no need for an independent Canadian restriction. However, there are reasons for a company to market vehicles uniquely in Canada and, from time to time, there are vehicle models sold in Canada but not in the U.S. The Regulations should contain provisions to ensure that unique-Canadian vehicles do not adversely affect the environmental performance of a company's fleet relative to the fleet average standards.

Taking the above factors into account, the Canadian framework for emissions averaging would:

• require companies to report their fleet averages emission values at the end of each model year.
• allow a company to elect to exclude its group of U.S.-certified motorcycles that are sold concurrently in Canada and the U.S. from mandatory compliance with the fleet average standards in a given model year.
• if a company sells a unique Canadian motorcycle model (i.e., not sold in the U.S.), allow a company to meet the prescribed emission standards based on the average emissions of only its unique-Canadian motorcycle fleet or on the average emissions of its total Canadian fleet of that model year (i.e., its unique-Canadian motorcycle fleet and its group of U.S.-certified motorcycles that are sold concurrently in Canada and the U.S.).
• not allow any individual motorcycles to be certified to emission levels that exceed the EPA specified family emission limits (FEL) for a given model year.
• allow a company to use emission credits from its Class III fleet to offset a deficit in its Class I and II fleet within the same model year.

A company could not include vehicles in the group not subject to a fleet average standard if the total number of equivalent vehicles sold in Canada exceeds the total number of such vehicles sold in the U.S. (i.e., where the family emission limit exceeds the applicable emission standards). This would ensure that a company cannot exclude vehicles that are certified to higher emission levels from being subject to a fleet average standard in Canada by selling an insignificant number of equivalent vehicles in the U.S.

Fleet averaging provisions structured in the proposed manner are expected to deliver fleet average emissions comparable to the U.S. while minimizing the regulatory burden on companies and allowing companies to market vehicles in Canada independently from the U.S. Environment Canada would review company fleet averages reports each year and could amend this approach in the future if the desired environmental performance was not being achieved.

Environment Canada does not plan to include provisions for the early banking of emission credits for Class III motorcycles, as permitted by the U.S. EPA. It is believed that the added complexity of such provisions is not warranted. Given the flexibility of the proposed overall approach to the Canadian fleet average provisions, companies are not expected to be disadvantaged by not being able to generate early emission credits.

Motorcycles sold in the U.S. under small volume manufacturer provisions would be eligible for sale in Canada through the acceptance of the EPA certificate of conformity as evidence of conformity with Canada's corresponding emission standards. Environment Canada also desires that Class III motorcycles manufactured in, or imported into, Canada by a company dealing in small volumes of motorcycles that are not covered by U.S. certification be subject to emission standards equivalent to those of the U.S. (i.e., delayed compliance with the Tier 1 standards until 2008 model year and exemption from compliance with Tier 2 standards). This approach is consistent with the established policy of aligning Canada's emission standards with those of the U.S. The Department is examining options available under the authorities of the Canadian Environmental Protection Act, 1999 to achieve this objective.

Motorcycles equipped with under 50 cc displacement engines represent a small portion of the overall Canadian motorcycle import market. Environment Canada plans to accept motorcycles that use an off-road engine certified under a valid EPA certificate of conformity, consistent with applicable labelling provisions to facilitate the identification of such products.

The framework for granting exemptions and the importation of "non-complying" vehicles for the purposes of exhibition, demonstration, evaluation and testing is contained directly in the Canadian Environmental Protection Act, 1999 and these issues are generally addressed on a case by case basis.

In view of the above, Environment Canada does not plan to propose any new requirements based on the U.S. provisions regarding temporary exemptions for reasons of hardship and volume-limited compliance exemptions including for motorcycle kits (maximum one per individual per life time of the provisions) and custom motorcycles used solely for display purposes (maximum 24 per company per year).

At this time, Environment Canada intends to maintain alignment with U.S. EPA test procedures used in the emission certification of on-road motorcycles.

Canada is a signatory to the "Agreement Concerning the Establishing of Global Technical Regulations for Wheeled Vehicles, Equipment and Parts which can be fitted and/or used on Wheeled Vehicles" under the auspices of the United Nations. A primary objective of this agreement is to establish a global process by which Contracting Parties from all regions of the world can jointly develop global technical regulations regarding the safety, environmental protection, energy efficiency, and anti-theft performance of motor vehicles.

A new draft world test cycle has been developed through the U.N. process and the focus is now shifting to the development of motorcycle emission limits under the proposed cycle. Consistent with the commitments under the Agreement and with the expected action of the U.S., when available, Environment Canada intends to propose through its normal regulatory process the acceptance of vehicles certified to a final global technical emission regulation for motorcycles.