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Ottawa puts hefty price tag on vehicle emissions

Ottawa believes it will cost Canada's auto makers, fuel suppliers and drivers almost $13-billion to meet greenhouse gas emission standards over the next six years.

But better fuel economy for drivers will more than make up for the additional cost of the average vehicle by 2016, Environment Canada says in a regulatory impact statement posted on Canada Gazette.

Two statements laying out the costs and benefits associated with Ottawa's dual strategy for cutting emissions in the transportation sector illustrate the steep costs to industry, including refineries, from the new efficiency standards for light trucks and autos, and a requirement that ethanol and biodiesel be included in the fuel supply.

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Renewable fuel regulations that take effect Sept. 1 are particularly costly, Environment Canada says. The analysis pegs the price of a requirement for 5-per-cent ethanol content in gasoline at $3.2-billion. A separate report done for Environment Canada says the government's 2-per-cent biodiesel rule will carry a $5.3-billion price tag.

Auto manufacturers will incur $3.7-billion in added costs from the 2011-2016 standards out of a total price tag of $4.2-billion.

That will drive the average purchase price of a 2016 model year vehicle $1,195 higher than 2008 levels because of the leaps in technology that will be required to meet the standards, the document says. The added cost per vehicle represents about 5 per cent of the average $25,000 cost of a vehicle in 2008.

However, Environment Canada said the benefits of better fuel economy will exceed costs by three to one, including $9.7-billion in fuel savings which, officials said, will more than make up for higher vehicle prices. It calculated motorists will recover their added upfront costs in a year and a half.

Environment Minister Jim Prentice has trumpeted the government's regulatory actions in the transportation sector, noting that 27 per cent of the country's greenhouse gas emissions are produced by cars, trucks, trains, ships and aircraft.

Canada has moved in tandem with the U.S. to impose new fuel efficiency standards on cars and light trucks for the 2011 to 2016 models years.

On Friday, U.S. President Barack Obama ordered the government to develop, for the first time, fuel efficiency and emission standards for big rigs and heavy trucks, and even tougher standards for cars and light trucks beginning in the 2017 model years. Canada's Environment Minister Jim Prentice also told reporters in Vancouver on Friday that his government will join the U.S. in setting new standards for heavy trucks.

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No targets for fuel efficiency were attached to Mr. Prentice's announcement in Vancouver - they will be set during the development of the regulations. But the industry expects it will be required to make an average improvement of 20 per cent.

The auto emission regulations will not apply to used cars and trucks imported into Canada, which raises the possibility of consumers scouring the U.S. used car market in order to avoid paying the higher price on new vehicles or find a bigger or high-horsepower vehicle not available in Canada.

"Canada is in this very unique situation in the global auto industry in that we have this massive supply of used vehicles within a couple of hours drive of the country," said industry analyst Dennis DesRosiers, president of DesRosiers Automotive Consultants Inc. in Richmond Hill, Ont.

At the same time, oil industry critics argue the government has imposed impractical demands on their companies, which must comply with regulations on Sept. 1, even though the detailed rules will not be finalized until late summer. And they argue the biofuels policy is an extremely expensive way to combat climate change.

"The overriding concern of industry was that we need to have a sufficient lead time of regulatory certainty to develop and implement compliance plans," said Peter Boag, president of the Canadian Petroleum Products Institute.

The renewable-fuel legislation was passed two years ago, but Mr. Boag said industry won't invest until it sees detailed final regulations.

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Currently, Ontario and all western provinces except Alberta have renewable fuel standards in effect, but Mr. Boag said it will be a major undertaking to incorporate the rest of the country into the program.

Environment Canada's impact analysis suggests the industry will require nearly $1-billion of additional investment due to federal rules. Consumers will face $2-billion in added costs because ethanol has a lower energy content than gasoline, requiring more fuel to travel the same distance.

"It's an incomplete report," said Gord Quaiattini, president of the Canadian Renewables Fuels Association. He also criticized the department for assuming that ethanol prices would be higher than gasoline, when in fact, the reverse has been true in recent years.

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About the Authors
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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