1225 I Street NW , Suite 900

Washington DC 20005
+1 202.534.1600
www.theicct.org

September 28, 2018

RE: Environment and Climate Change Canada’s Evaluation of Model Year 2022 to 2025 Light
Duty Vehicle Greenhouse Gas Emissions Standards

The International Council on Clean Transportation (ICCT) welcomes the opportunity to provide
comments on the Mid-term Evaluation of Environment and Climate Change Canada (ECCC)
regarding greenhouse gas (GHG) standards for model year 2022 to 2025 light duty vehicles. The
ICCT is an independent nonprofit organization founded to provide unbiased research and technical
analysis to governments in major vehicle markets around the world. Our mission is to improve the
environmental performance and energy efficiency of road, marine, and air transportation in order to
benefit public health and mitigate climate change.

We welcome this chance to comment on the Canadian government’s efforts to mitigate global
climate change and reduce the demand for oil in the transport sector. We commend ECCC for its
continuing efforts to promote a more efficient and lower carbon economy, while being responsive
to all stakeholders and relevant data. ICCT’s two primary recommendations are:
1. ECCC commences a rulemaking process to establish Canada-specific vehicle GHG
standards that are not formally linked to any other jurisdiction.
2. ECCC maintains the stringency of the current regulation out to 2025 and then turns its
attention to developing the next phase of vehicle greenhouse gas standards as well as
complementary policies such as those that will accelerate the large-scale adoption of zero
emission vehicles.

Our public submission provides the detailed basis for our recommendations. We hope these
comments can help ECCC to fully meet their requirements to establish maximum feasible and
appropriate standards.

We would be glad to clarify or elaborate on any points made in the attached comments. If there are
any questions, ECCC staff can feel free to contact our Canada Program Lead, Ben Sharpe
(ben@theicct.org).

Best regards,

Drew Kodjak
Executive Director
The International Council on Clean Transportation
International Council on Clean Transportation comments on
Environment and Climate Change Canada’s Mid-term Evaluation of
Model Year 2022 to 2025 Light Duty Vehicle Greenhouse Gas
Emissions Standards

Public submission to

Environment and Climate Change Canada

Sent via email to: ec.infovehcileetmoteur-vehicleandengineinfo.ec@canada.ca

September 28, 2018

Table of contents
I. Introduction ............................................................................................................. 1
II. Rationale for developing Canada-specific vehicle GHG standards .................... 2
Canada-specific GHG standards provide much-needed regulatory certainty ............ 2
Strong standards support Canada’s competitiveness in a global market .................. 3
Canada’s auto market is large enough to set its own standards ............................... 5
III. Responses to issues outlined in ECCC’s Discussion Paper ............................... 6
What levels of vehicle technology costs and payback timelines are reasonable for
compliance with the existing 2022 to 2025 standards? ................................... 6
Are there any impediments to meeting the estimated levels of electrification (plug-in
vehicles) from the 2014 Regulatory Impact Analysis Statement? What level of
electrification (plug-in vehicles) and hybrid powertrains would be needed to
achieve compliance with the existing 2022 to 2025 standards? .................... 10
Is the projected greenhouse gas emission reduction contribution of the light-duty
vehicle sector towards meeting the government’s emission reduction goals
reasonable? .................................................................................................. 11
Would compliance with the existing standards for the 2022 to 2025 model years be
achievable while maintaining the competitiveness of the Canadian auto industry
considering the integrated nature of vehicle manufacturing and trade in the North
American market? ......................................................................................... 13
Would the existing standards for the 2022 to 2025 model years provide benefits to
consumers and to the public? ....................................................................... 14
Are there any safety related considerations that should be taken into account? ..... 19
Are there changes to existing flexibilities or other new flexibilities that should be
considered to facilitate compliance with existing standards while minimizing
impacts on expected greenhouse gas emission reductions?......................... 23
Are there any other factors affecting the light-duty vehicle market that the department
should consider as part of the mid-term evaluation? Are there any other factors
that the department should take into account in considering the outcome of the
U.S. mid-term evaluation and the appropriateness of the existing 2022 to 2025
model year standards in Canada? ................................................................ 24
IV. Summary ............................................................................................................... 27
 I. Introduction
The International Council on Clean Transportation (ICCT) provides these comments to support
Environment and Climate Change Canada (ECCC) in their deliberation regarding the
appropriateness of the existing model year (MY) 2022 to 2025 greenhouse gas (GHG)
emissions standards for light duty vehicles.
The purpose of these comments is to provide objective, policy relevant information as input into
Canada’s forthcoming mid-term evaluation of its GHG performance standards for new
passenger vehicles. In its final regulation that was originally published in 2014, Environment and
Climate Change Canada (ECCC) committed to a formal mid-term evaluation to assess the
appropriateness of Canada’s standards, in recognition of the particularly long timeframe
associated with the regulation. This mid-term assessment is very similar to the process in the
United States, which finalized its mid-term evaluation in April 2018.
In the Final Determination from its mid-term evaluation process, the U.S. Environment
Protection Agency (EPA) determined that the current standards for MY 2022 to 2025 vehicles
are “not appropriate in light of the record before EPA and, therefore, should be revised as
appropriate.”1 This most recent finding reverses the conclusion from the EPA’s previous Final
Determination from January 2017 that found that the standards were cost-effective and
achievable out to 2025. Following this announcement in April 2018 on the inappropriateness of
the current regulation, the EPA jointly released its Notice of Proposed Rulemaking (NPRM) in
collaboration with the U.S. Department of Transportation’s National Highway Traffic Safety
Administration (NHTSA) in August 2018.2 The preferred regulatory alternative outlined in the
U.S. NPRM significantly rolls back the stringency of the standards by eliminating the efficiency
improvement requirements for MY 2021 to 2025 vehicles that are in the current regulation.
Canada has a long history of harmonizing its fuel quality, vehicle efficiency, and air pollutant
control measures with the U.S., and this partnership is codified in the Canada-U.S. Air Quality
Agreement.3 As such, ECCC’s current GHG standards for passenger cars and light trucks were
developed in collaboration with the EPA and are nearly identical to the U.S. regulation in terms
of stringency targets and timelines, vehicle certification procedures, and flexibility mechanisms.
Many portions of Canada’s GHG standards incorporate the U.S. rule by reference, meaning that
ECCC refers directly to the EPA’s regulation and the U.S. Code of Federal Regulations for
elements such as the numerical GHG requirements and testing protocols. This incorporation-by-
reference feature of the Canadian rule means that if the U.S. finalizes revised standards for
vehicles out to MY 2025, Canada’s regulation will automatically adjust to remain aligned with the
U.S. regulation. The imminent roll back of U.S. standards immediately puts a critical decision to
the Canadian government: continue the policy of aligning with the U.S. and thus weaken its own
2025 regulation; or, maintain the stringency of the current 2025 standards.
The remainder of this document is organized as follows:
 Section II describes the key reasons why it is in Canada’s best interest to develop its
own separate vehicle GHG standards that are not explicitly linked to any other
jurisdiction;

1 https://www.gpo.gov/fdsys/pkg/FR-2018-04-13/pdf/2018-07364.pdf
2 https://www.govinfo.gov/content/pkg/FR-2018-08-24/pdf/2018-16820.pdf
3 https://www.canada.ca/en/environment-climate-change/services/air-pollution/issues/transboundary/canada-united-

states-air-quality-agreement-overview.html

1
  Section III responds to the technical questions and issues that are identified by ECCC in
their Discussion Paper4 as the most critical factors under deliberation during Canada’s
mid-term evaluation process; and
 Section IV summarizes the key factors supporting the ICCT’s recommendation that
ECCC engage in a regulatory development process with the intent of finalizing a
Canada-specific vehicle GHG regulation that maintains the existing efficiency
improvement requirements out to 2025.

II. Rationale for developing Canada-specific vehicle GHG standards

In the following subsections, we discuss how Canada-specific vehicle GHG standards can
provide the automotive industry with long-term regulatory certainty, boost Canada’s
competitiveness, and, in doing so, Canada can establish itself a global leader in this critically
important regulatory space.
Canada-specific GHG standards provide much-needed regulatory certainty
While the situation in the U.S. is fluid, it does appear that there will be prolonged legal battles
around the U.S. federal standards and California’s authority to issue and enforce its own vehicle
regulations. California has the unique ability under the U.S. Clean Air Act (CAA) to set its own
vehicle regulations5, and Section 177 of the CAA also grants other states the option to follow
California’s vehicle regulations in lieu of those at the federal level.6 As an alternative compliance
method in the California regulation, manufacturers can opt to comply with the U.S. federal
standards. This ‘deemed to comply’ measure has been especially important to industry, as the
provision creates a de facto single national regulation, which automakers often emphasize as
one of their top priorities for the North American market.7 On August 7, 2018, the California Air
Resources Board (CARB) proposed an amendment8 that would clarify California’s existing
regulation to ensure that if the U.S. EPA modifies its standards, then automakers that want to
sell cars in California after the 2020 model year would need to meet California’s standards—and
not the federal GHG standards that may be rolled back in the future.

Given the lawsuits that have already been filed by California and 17 other states9 and separately
by a group of seven environmental organizations10, it is highly likely that the U.S. federal vehicle
standards will be tied up in legal challenges that could last several years. Destabilization of the
2025 standards will put grave uncertainty on the returns on the billion-dollar investments that
automakers and suppliers have made. A previous ICCT study highlights a selection of industry
investments in North America related to automobile efficiency technology.11 The investments
represent many thousands of high-tech manufacturing jobs and billions of dollars in
investments. The success and sustainability of such technology investments depends on a
stable regulatory environment. Maintaining the standards would protect high-technology

4 https://www.canada.ca/en/environment-climate-change/services/canadian-environmental-protection-act-
registry/publications/automobile-truck-emission-regulations-discussion.html
5 https://www.epa.gov/state-and-local-transportation/vehicle-emissions-california-waivers-and-authorizations
6 https://www.transportpolicy.net/standard/us-section-177-states/
7 https://www.globalautomakers.org/posts/press-release/global-automakers-views-epa-s-my-2022-2025-ghg-

emission-final-determination-as-an-important-first-step
8 https://www.arb.ca.gov/regact/2018/leviii2018/leviiiisor.pdf
9 https://oag.ca.gov/system/files/attachments/press_releases/2018-05-01%20Petition%20Revised%20MTE.pdf
10 http://blogs.edf.org/climate411/files/2018/05/NGO-Petition-for-Review-of-Revised-FD-FINAL-5-15-18.pdf
11 Lutsey, N. (2012). Regulatory and technology lead-time: The case of US automobile greenhouse gas emission

standards. Transport Policy. 21: 179-190. http://www.sciencedirect.com/science/article/pii/S0967070X12000522

2
manufacturing investments in efficiency technologies, whereas weakening or uncertainty about
the standards jeopardizes such investments.

At present, Canada’s numerical vehicle GHG standards out to 2025 are incorporated from the
U.S. EPA’s regulation by reference. So, to maintain the existing vehicle efficiency requirements,
ECCC will need to develop a completely new stand-alone regulation for Canada that is not
formally tied to the U.S. EPA’s regulation. And while California and several other states have
seem intent to retain the vehicle standards in their current form, in the NPRM the U.S. federal
agencies have proposed to revoke California’s waiver and thus eliminate the states authority to
set its own vehicle GHG standards as well as administer its Zero Emission Vehicle (ZEV)
mandate.12 California has signaled that it will rigorously defend its authority under the Clean Air
Act13, and so this yet another aspect of the overall vehicle regulatory situation in the U.S. that
will be locked in prolonged litigation.

By maintaining the current 2025 standards, Canada can provide its automotive industry with
much-needed regulatory certainty. With the U.S. federal standards and California’s special
authority to regulate GHGs tied up in legal uncertainty for the foreseeable future, Canada’s only
option for establishing regulatory certainty is to create its own Canada-specific vehicle
standards.

Strong standards support Canada’s competitiveness in a global market

The existing 2025 vehicle GHG regulations in Canada have the country’s fleet headed in the
same direction as most other major world automobile markets. About 80% of world automobile
sales are regulated to increase their efficiency and reduce carbon emissions. Like Canada’s
regulation, all other standards around the world are indexed to vehicle size (or mass), and
therefore require that efficiency technologies are deployed across the entire fleet. Figure 1
shows the progression of global efficiency standards in major world car markets.14 In the
Canada case, industry has consistently over-complied with 2012-2015 standards while the
industry overall achieved North American vehicle sales at their all-time highs, and with most
companies producing high profits. Compliance with the standards helps ensure that Canada-
based companies embrace leading technology and remain internationally competitive elsewhere
around the world. Conversely, weakening the standards would make it more difficult for
Canada-based companies to compete in the major automobile markets around the world,
including the European Union and China, which have increasingly stringent efficiency
standards.

12 https://nepis.epa.gov/Exe/ZyPDF.cgi?Dockey=P100V26M.pdf
13 https://www.sfchronicle.com/bayarea/article/Brown-vows-to-fight-this-stupidity-as-EPA-13126812.php
14 International Council on Clean Transportation, 2015. Global passenger vehicle standards.

http://www.theicct.org/info-tools/global-passenger-vehicle-standards

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Figure 1. Passenger car efficiency standard CO2 emissions*
* The U.S. curve is set with carbon dioxide levels frozen at model year 2020 levels. This assumes that the U.S.
Environmental Protection Agency and the National Highway Traffic Safety Administration finalize the standards using
the preferred alternative that is outlined in the Notice of Proposed Rulemaking (i.e., freezing at 2020 levels).

In a 2017 study15, the ICCT reviewed the political science, regulatory, and economics literature
to illuminate the international competitiveness impacts of motor vehicle emission standards. The
primary question the authors consider is whether motor vehicle emission standards adopted in
one market will create a future competitive advantage for domestic manufacturers when policy
diffusion leads other markets to adopt similar emission standards at a later date. The study
reveals that countries that adopt strict environmental standards secure an early-mover
advantage for their firms by creating conditions in which economies of scale can develop,
network effects can grow, and technological ‘learning by doing’ can take place. Thus, Canada
can best position itself globally by not only maintaining the current vehicle standards but by
looking beyond 2025 to further tighten vehicle GHG standards and develop a suite of other
complementary policies that will continue to drive innovation in Canada’s automotive sector.
Moreover, committing to strong efficiency and zero emission vehicle policies supports Canada’s
goals of growing its domestic clean technology sector and accelerating zero emission vehicle
deployment, as outlined in the Pan-Canadian Framework on Clean Growth and Climate
Change.16

15 Naimoli, S., Kodjak, D., and J. Schultz (2017). International competitiveness and the auto industry: What’s the role
of motor vehicle emission standards?
https://www.theicct.org/publications/international-competitiveness-and-auto-industry-whats-role-motor-vehicle-
emission
16 http://publications.gc.ca/collections/collection_2017/eccc/En4-294-2016-eng.pdf

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Canada’s auto market is large enough to set its own standards

A common sentiment that is expressed by auto manufacturers is that Canada is too small of a
market to set its own vehicle standards. The reasoning is as such: automakers have a strong
incentive to sell the same sets of products across the U.S. and Canada, and with roughly 90%
of sales in the combined market, the U.S. is the driving force behind vehicle technology
investment and deployment decisions for both countries. Therefore, as the argument goes,
Canada is a ‘technology taker’ from the U.S. and should remain aligned with the U.S. in its
vehicle GHG regulation. We counter this argument with the two subsequent points.

1. Canada is in a position of providing regulatory certainty to the auto industry, where there
is no certainty in the U.S. and California. As aforementioned, 17 states17 have joined
California in suing the U.S. EPA in seeking to block the U.S. federal government from
revising vehicle GHG emissions standards. If we assume that California exerts its
authority to enforce its own 2025 regulation and that most (if not all) of the 17 non-
California states continue to follow California’s regulatory lead, this group of states that
are maintaining current 2025 vehicle standards would account for over 40% of new
vehicle sales in the U.S.18 However, California’s legal authority to set its own separate
vehicle standards is likely going to be locked in litigation for several years. While
California’s unique authority may be shrouded in uncertainty for the foreseeable future,
Canada’s authority to regulate its own vehicle fleet is clear. With an unclear regulatory
situation in the U.S., Canada’s clear authority to set vehicle GHG standards can provide
regulatory certainty to aid in automaker’s decisions regarding efficiency technology
development and deployment across North America.

2. Canada has roughly the same size vehicle market as California. New passenger vehicle
sales in Canada and California are similar at approximately 2 million units sold per year.
As a response to very poor air quality in many of its urban areas, California began
introducing vehicle criteria pollutant regulations in the 1960s that forced carmakers to
install emission control equipment on vehicles sold in the state. In 1970’s Clean Air Act,
the U.S. federal government followed California’s ‘technology-forcing’ approach in
setting air quality standards for the nation. California’s low emission vehicle (LEV)
program started in 1990 focused on reducing pollutants such as nitrogen oxides and
particulate matter that affect local air quality, and in 2004 the second phase of LEV
regulations (LEV II) expanded the scope of pollutants to include GHGs starting with MY
2009 vehicles.19 Despite its relatively small size compared to the overall U.S. market,
California has a long history of implementing California-specific vehicle policies to
reduce fuel use and emissions, as well as spur the commercialization of zero emission
vehicles. California has shown that the size of Canada’s vehicle market should not
preclude it from creating and implementing a set of Canada-specific vehicle policies that
can help establish Canada as a global leader in this regulatory space.

17 These states include: Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New
Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington.
18 https://oag.ca.gov/news/press-releases/california-and-states-representing-over-40-percent-us-car-market-sue-

defend
19 https://www.transportpolicy.net/standard/california-light-duty-emissions/

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 III. Responses to issues outlined in ECCC’s Discussion Paper
In a Discussion Paper published August 20, 2018, ECCC discusses several issues that they will
be considering in the mid-term assessment of vehicle GHG standards. In this section we
respond directly to ECCC’s questions.

What levels of vehicle technology costs and payback timelines are reasonable for
compliance with the existing 2022 to 2025 standards?
Vehicle manufacturers have a wide variety of efficiency technologies to meet future
regulatory GHG targets. Each technology option has an associated cost to produce and
adopt into corresponding vehicle platforms. The ICCT analyzed the cost associated to
meet the existing GHG2025 standards for model year (MY) 2025 light duty vehicles
(LDV) sold in Canada, and estimated consumer benefits.
We made use of the Optimization Model for Reducing Emissions of Greenhouse Gases
(OMEGA) and applied it to the Canadian baseline fleet to assess the costs and benefits
of different regulatory scenarios: one where the GHG 2025 standards remain at the
existing levels and one where the standards are frozen at 2020 levels.
OMEGA was developed by the EPA as a tool to evaluate the impact of the U.S. 2012–
2016 GHG regulations for the LDV fleet and was used again in the development and
assessment of the 2017–2025 standards and updated in 2016 for the mid-term review
analysis. The results of that analysis were performed with the latest publicly available
version of OMEGA 1.4.56. released in July 2016.
OMEGA is designed to apply technology in a manner similar to the way that a vehicle
manufacturer might make such decisions.20 In general, the model considers the cost of
the technology and the degree to which the technology moves the manufacturer toward
achieving its fleetwide CO2 emission target. OMEGA solves an optimization problem to
find the lowest compliance cost for each manufacturer, not just for each vehicle. This
method allows for some specific vehicle models to be overcompliant while others do not
achieve their individual target, or cars may be overcompliant while trucks are
undercompliant. As such, it is not necessarily useful to assess the outcomes by vehicle
model. Instead, outputs should give a good understanding of the average costs by
manufacturer or vehicle type. OMEGA applies technology (subject to phase-in
constraints, such as estimated hybrid and EV penetration rates) to vehicles until the
sales- and activity-weighted emission average complies with the specified standard or
until all the available technologies have been applied. Vehicle activity is used to balance
total CO2 for cars and trucks (and the corresponding CO2 credit transfers within a single
manufacturer production line).
This analysis also incorporated ICCT updates to the technology cost and benefits inputs
to the OMEGA model. The updates considered both emerging technologies and
improvements in known technologies, which yielded both reduced costs and improved
GHG benefits.21 Using both EPA and ICCT cost curves in the OMEGA model allows this
analysis to capture a range of outlooks for vehicle and engine design under GHG
standards in the 2020–2025 timeframe. The two distinct technology cost curves, EPA’s

20 https://www.epa.gov/regulations-emissions-vehicles-and-engines/optimization-model-reducing-emissions-
greenhouse-gases
21 Lutsey, N., Meszler, D., Isenstadt, A., German, J., & Miller, J. (2017). Efficiency technology and cost assessment

for U.S. 2025–2030 light-duty vehicles. https://www.theicct.org/publications/US-2030-technology-cost-assessment

6
 and ICCT’s, include technologies that are applicable to various types of vehicles, along
with the technologies’ cost, effectiveness, and phase-in constraints.
The results shown here illustrates the projected least-cost technology pathway toward
compliance. Manufacturers may choose other compliance pathways—including shifting
their product mix to vehicles of larger or smaller size than those currently sold or
promoting SUV sales over compact cars—depending on marketing strategies, fuel price
variations, local conditions and consumer preferences, and further technology
development.
Before answering the question on costs, an overview of the projected technology
adoption trends is presented in Figure 2. The OMEGA model projects that for the
average Canadian vehicle meeting GHG 2025 existing targets, most of the efficiency
gains are expected to be realized by improvements to conventional technologies, with
very little market uptake required for more advanced powertrains, such as those in full
hybrids and electric vehicles. In the 2025 time frame, technology pathways lead to some
48 volt mild-hybridization (0%–20% market share) and a much lesser role for full-hybrid
and battery-electric technologies. A detailed description of the technology forecast can
be found in the technology and cost report by Posada et al.22

Figure 2. Comparison of projected Canadian LDV fleet average changes in technology

penetration under EPA cost-effectiveness assumptions (brown lines), and under ICCT’s
cost-effectiveness assumptions (blue lines). Baseline (CY 2016) data shown as line start
points; MY 2025 values shown as line arrowheads; MY 2020 values shown as dots.

22 Posada, F., Isenstadt, A., Sharpe, B., & German, J. (2018). Assessing Canada’s 2025 passenger vehicle
greenhouse gas standards: Technology deployment and costs. https://www.theicct.org/publications/canada-2025-
cafe-standards-techcost-201809

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 Costs per vehicle
Meeting the existing 2025 standards costs, on average, $865 (2015 CAD, $651 USD)
more per vehicle than meeting the 2020 standards; according to updated ICCT
technology-cost inputs. The cost when using EPA cost-benefit estimates are $1,368
($1,029 USD) more per vehicle for meeting the 2020 standards. Table 1 presents the
results by car and truck and for the entire fleet. The summaries include direct
manufacturing costs, or the added costs incurred by manufacturers to meet the
standards, as well as indirect costs, including overhead, marketing, distribution,
warranty, and profit.

Table 1. Estimated total costs for the Canadian fleet to meet the 2025 standards
compared to the costs of meeting the 2020 standards (2015 CAD).
Difference
Costs to meet 2025 Costs to meet 2020
standards in 2025 standards in 2025
(2025 vs. 2020)

Cars $1,542 $331 $1,211

EPA inputs Trucks $1,972 $461 $1,511

Fleet $1,766 $399 $1,368

Cars $1,045 $260 $784

ICCT inputs Trucks $1,308 $369 $938

Fleet $1,183 $318 $865

Figure 3 compares the total costs incurred by individual manufacturers on a fleet-wide

basis for the Canadian fleet, under both ICCT’s assumptions and EPA’s more
conservative assumptions.

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Figure 3. Comparison of manufacturer fleet-average total costs to meet the 2025
standards in Canada under ICCT (dark) and EPA (light) technology inputs compared to
meeting the 2020 standards.

The average compliance costs in Canada are within 2% of the average costs in the
United States. The slight differences stem largely from the differences in baseline fleet
technology penetration and relative share of cars and trucks, which have different
compliance costs. The difference in manufacturer car-truck split between the two
countries also suggests compliance costs will differ for each manufacturer.
Table 2 summarizes the costs and technologies required to meet the 2025 standards in
Canada by MY 2025. Both EPA and ICCT inputs lead to the straightforward conclusion
that improvements to conventional powertrains make up the vast majority of technology
required to meet the GHG standards in 2025. Such improvements—termed “advanced
combustion” in Table 2—include Atkinson-cycle and Miller-cycle engines, cylinder
deactivation, turbo-downsizing, and a suite of technologies that allow more precise
control over engine and transmission operation. Furthermore, automakers have recently
announced plans for additional advanced combustion efficiency technologies that were
not incorporated into either EPA’s or ICCT’s inputs to the OMEGA model.23 Although
electrification and full hybridization are not necessary to comply with Canada’s 2025
GHG standards, the popularity of plug-in hybrids and fully electric vehicles will likely
grow as battery technology improves and costs decline. Many automakers have publicly
committed to offering fully electric vehicles. Such commitments serve as further
indication that manufacturers have many possible pathways in which to improve the
efficiency of their fleets and meet future GHG emissions standards.

23 For example, Mazda will introduce a gasoline compression ignition engine in 2019, FCA’s 2019 RAM pickup has a
48v hybrid system standard on the base V6 engine, and Infiniti’s 2019 QX50 has a variable compression ratio,
turbocharged engine.

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Table 2. Technologies and costs (2015 CAD) needed to meet the 2025 GHG standards for
the Canadian fleet.
EPA ICCT
Area Technology
inputs inputs

High compression ratio Atkinson/Miller 23.9% 61.8%

Advanced Turbocharged and downsized 39.3% 15.1%
combustion
Cylinder deactivation 46.1% 48.3%

Non-hybrid and non-electric 80.8% 97.8%

Mild hybrid 17.2% 0.0%

Hybrid
Full hybrid 1.2% 1.2%
Plug-in hybrid electric 0.3% 0.3%
Electric
Battery electric 0.5% 0.7%

Incremental technology cost from 2020 standards $1,368 $865

Incremental technology cost from Baseline (CY2016) $1,766 $1,183

Are there any impediments to meeting the estimated levels of electrification (plug-in
vehicles) from the 2014 Regulatory Impact Analysis Statement? What level of
electrification (plug-in vehicles) and hybrid powertrains would be needed to achieve
compliance with the existing 2022 to 2025 standards?
As shown in our answer to question 1, most of the technologies projected to meet the
existing 2025 standards focus on advanced internal combustion technologies. Very little
electrification of the powertrain system, i.e. hybridization, is required to meet GHG 2025
standards. They can be met with a fleet that is comprised mainly of non-electric vehicles
with advanced combustion engines (83% under EPA cost assumptions and 98% under
ICCT cost assumptions).
In the 2025 timeframe, EPA’s technology pathways lead to some 48-volt mild-
hybridization (15% to 20% market share) and a much lesser role for full-hybrid and
battery-electric technologies. The ICCT update of those pathways results in little
hybridization of any kind, due primarily to the lower costs and higher benefits forecasted
for conventional technologies (Table 2).
Battery electric, plug-in hybrid electric, and hybrid electric vehicles
Figure 2 and Table 2 show that battery-electric and plug-in vehicles play little, if any, role
in meeting the GHG 2025 standards in Canada, and the same is true in the United
States. The standards simply do not require widespread uptake of EVs. Should national-
level and local-level governments desire broad adoption of electric vehicles, additional
strategies and incentives would be required beyond the CO2 standards.

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 Mild hybrid electric vehicles (48-volt)
The 48V mild hybrid offers roughly half of the benefits of a full hybrid at only a third of the
cost. These vehicles permit acceleration assist and turbo lag reduction, both of which
could prove attractive to the Canadian fleet, which, as of calendar year (CY) 2016, is
more than 25% turbocharged. Mild hybrids also enable more robust stop-start,
regenerative braking, engine downspeeding, sailing, and shifting the burden of some
accessories from the engine to the electrical system. Combined, these effects can
dramatically reduce urban driving fuel consumption. EPA inputs predict that mild hybrids
will occupy 17% of the market by 2025. ICCT inputs, on the other hand, show fleet-wide
compliance without the use of any mild hybrids. The difference in projected outcomes is
due to ICCT’s assumptions that improvements in conventional combustion
technologies—like those discussed above—will be more cost-effective than those used
in EPA’s assumptions.

Is the projected greenhouse gas emission reduction contribution of the light-duty

vehicle sector towards meeting the government’s emission reduction goals
reasonable?
Figure 4 shows the overall difference in CO2 emissions for two regulatory scenarios: 1)
maintaining the current GHG 2025 efficiency standards and 2) freezing efficiency targets
at GHG 2020 levels (as is the preferred alternative in the proposed regulation from the
U.S. federal agencies). This modeling exercise was done using the Global
Transportation Roadmap Model.24 In 2030, the freeze scenario results in an annual
addition of 10.7 million tonnes (Mt) of CO2, a 19% increase when compared with
maintaining the GHG 2025 standard. By 2050, this value swells to 25.1 Mt, a 45%
increase above the scenario in which the 2025 standard is maintained at current
stringency levels. These levels of CO2 emissions are in line with the government’s
emission reduction goals.

24 https://www.theicct.org/transportation-roadmap

11
Figure 4. Carbon dioxide (CO2) emissions from Canada’s passenger vehicle fleet under scenarios
that freeze standards at GHG 2020 levels or maintain the GHG 2025 standards currently in place.

Freezing the vehicle efficiency targets would put in jeopardy roughly 11 Mt of the 15 Mt25
of GHG reductions that Canada needs from the transport sector in order to meet the
targets outlined in the Pan-Canadian Framework. That is because the reductions
envisioned under the existing regulation are back-loaded with the greatest benefits
coming in the later MY vehicles. According to ECCC estimates in its regulatory impact
analysis, MY 2021 – 2025 vehicles account for about 80% of the GHG reductions from
the regulation, as shown in Figure 5.

25 See the “Sectoral Reductions” table at the bottom of the following webpage. Environment and Climate Change
Canada developed estimates for each sector of the economy to achieve the target of reducing GHGs by 30% by
2030 versus a 2005 baseline. Transportation is shown to need 15 Mt of GHG reductions in 2030 compared to the
Reference case. The decrease in GHGs due to Canada’s vehicle GHG standards for MY 2017 to 2025 vehicles
are included in the 15 Mt estimate.
https://www.canada.ca/en/services/environment/weather/climatechange/climate-action/modelling-ghg-
projections.html

12
 100%

MY 2025
80% Model year 2021
MY 2024 through 2025
vehicles make up
60% nearly 80% of
MY 2023 GHG reductions
from the
40% MY 2022 regulation

MY 2021
20%
MY 2020
MY 2019
MY 2018
0% MY 2017

Figure 5. Breakdown of the contribution to GHG reductions over the lifetime of MY 2017 –
2025 vehicles affected by the regulation.
(Source: Table 4: Summary of main results, Canada Gazette Part II, Vol. 148, No. 21, Regulations Amending the
Passenger Automobile and Light Truck Greenhouse Gas emission regulations)

Would compliance with the existing standards for the 2022 to 2025 model years be
achievable while maintaining the competitiveness of the Canadian auto industry
considering the integrated nature of vehicle manufacturing and trade in the North
American market?
As discussed above in Section II, there is ample evidence to suggest that a strong
vehicle GHG regulation and policies that support the transition to higher efficiency and
zero emission vehicles can help bolster Canada’s position in a highly competitive global
automotive market. In an ICCT study26 about the international competitiveness impacts
of motor vehicle emission standards, the literature tends to support the following
observations:
 Strict, well-designed environmental regulations spur innovation
 Domestic firms achieve a first-mover advantage through “learning by doing” and
economies of scale
 Policy diffusion of emission standards leads other markets to adopt similar
standards after a brief lag time, and the technological innovations they induce
diffuse throughout industry in a related but independent process
 Domestic manufacturers (automakers and suppliers) are able to comply with
standards adopted in other markets at lower cost than their competitors

26 Naimoli, S., Kodjak, D., and J. Schultz (2017). International competitiveness and the auto industry: What’s the role
of motor vehicle emission standards?
https://www.theicct.org/publications/international-competitiveness-and-auto-industry-whats-role-motor-vehicle-
emission

13
  Global automakers exporting to markets with stringent emission standards will
lobby their home governments to raise their standards to gain a competitive
advantage over other, non-global domestic manufacturers
 Research and development, assembly plants, and component supplier
production facilities tend to be located in those markets with advanced auto
emission standards
Leading auto markets around the world are developing vehicle efficiency standards and
other regulatory programs that are pushing manufacturers to make significant
investments in the development and deployment of fuel-saving technologies and
electrification. For example, in November 2017 the European Union proposed its next
round of vehicle GHG standards, which would extend out to 2030 and set the global
high-water mark for the average efficiency of new vehicles at 67 grams CO2 per
kilometer (2.9 liters per 100 km). In addition to the global trend of increasingly stringent
vehicle efficiency standards, many countries are putting increased emphasis on
implementing policies to promote the accelerated transition to vehicle electrification. A
detailed assessment27 of light-duty electric vehicle sales and manufacturing around the
world reveals that there is a broad global competition underway. Governments are
seeking to gain from the transition to electric vehicles with a series of supportive policies.
The competition is among countries and companies to be a key part of the economic
and market growth of electric vehicles.
The global trend towards high efficiency and electric drive is clear. With a commitment to
strong vehicle standards for 2025 and beyond as well as a comprehensive set of policies
and programs to support zero emission vehicles, Canada can put its automotive industry
in a position to thrive.
Would the existing standards for the 2022 to 2025 model years provide benefits to
consumers and to the public?
From the Canadian consumer perspective, the upfront total manufacturing costs of more
efficient technologies can be recouped due to lower fuel consumption within a few years
of typical use, with further benefits accruing in the following years. A typical MY 2025
vehicle that complies with the existing GHG 2025 standards would incur additional costs,
but the savings would quickly accumulate and overshadow these costs. Consequently,
payback happens faster for a MY 2025 vehicle built for GHG 2025 standards than for a
MY 2025 vehicle built for less efficient GHG 2020 standards. The existing 2025
standards have lifetime benefits that are 3 to 5 times the costs. Thus, consumers spend
less money overall in owning and operating their vehicles. The public as a whole also
enjoys significant benefits: by 2030, annual fuel savings reach 4.6 billion liters,
equivalent to $7.0 billion CAD saved, and 10.7 Mt CO2 avoided.
In Posada et al. (2018)28, consumer benefits of LDV efficiency technology for the existing
2025 regulation are evaluated using three distinct measures:
 payback period, which refers to the number of years it takes for cumulative fuel
savings to recover the initial investment in technology;

27 Lutsey, N., Grant, M., Wappelhorst, S., & Zhou, H. (2018). Power play: How governments are spurring the electric
vehicle industry. https://www.theicct.org/publications/global-electric-vehicle-industry
28 Posada, F., Isenstadt, A., Sharpe, B., & German, J. (2018). Assessing Canada’s 2025 passenger vehicle

greenhouse gas standards: Benefits analysis. https://www.theicct.org/publications/canada-2025-cafe-standards-

benefits-201809

14
  lifetime fuel savings, which reflects the cumulative fuel savings over the lifetime
of the vehicle, including those that take place after the investment in technology
has been fully recovered; and
 benefit to-cost ratio, which reflects lifetime fuel savings divided by the investment
in vehicle technology, including any changes in maintenance costs, insurance
costs, and vehicle taxes over the vehicle’s lifetime.
Of the three measures considered, lifetime fuel savings and benefit-to cost ratio are
more complete measures of consumer benefits than the payback period, since these
count fuel savings that continue to accrue after the investment is paid back. All three
measures are quantified for sensitivity analysis, including those that reflect a range of
fuel prices. For the economic valuation of future cash flows, the consumer benefits are
estimated using both a 3% and 7% discount rate.
ICCT’s analysis for Canada applies the same underlying assumptions and methods as
the EPA’s, except that the ICCT analysis draws from updated vehicle technology
assessments and inputs for fuel price, vehicle survival rates, annual mileage driven, and
driving externality costs (such as congestion, accidents, noise, and refueling time) that
are unique to Canada.29 These payback methods apply detailed outputs from the
OMEGA model for incremental vehicle technology costs and technology uptake time to
meet corresponding annual CO2 targets. They also include projections for the new
vehicle fleet, including annual vehicle mileage, retail fuel prices, and electricity prices for
electric vehicles.

Canadian consumer benefits: payback times

To illustrate the cumulative savings, Table 3 lists the costs for each year of ownership
associated with buying, owning, and operating the average 2025 Canadian vehicle, as
well as the fuel savings associated with the efficiency improvements. These costs and
savings were compared to a 2025 vehicle manufactured to meet the 2020 emission
standards. The table shows that a typical MY2025 vehicle that complies with the GHG
2025 standards would incur additional costs, but the savings would quickly accumulate
and overshadow these costs. The values in Table 3 reflect a 3% discount rate, reference
fuel price, and purchasing the vehicle with cash. Vehicle technology represents the cost
of the higher fuel-efficiency technology implemented on the 2025 average vehicle, as
compared to a 2025 vehicle meeting 2020 standards. Taxes and insurance are based on
sale price, as well as depreciation for insurance, and also reflect this difference.
Maintenance costs include replacement of tires, oil, filters, coolant, and spark plugs.
Cumulative savings simply represent the sum of all costs and fuel savings. The costs
and savings shown in Table 3 represent the difference between a MY 2025 vehicle that
complies with the GHG 2025 standards and one that complies with the GHG 2020
standards. As shown, consumers see net savings in two to four years, assuming a cash
purchase. Using ICCT technology and cost inputs, payback occurs between years one
and two. Using EPA inputs, the payback time is between three and four years.

29 Lawson, J. (2010). Technical Report on Analysis of Proposed Regulation of Passenger Automobile and Light Truck
Greenhouse Gas Emissions. Report prepared for Environment Canada under contracts with Cantran Enterprises
Ltd. and Lawson Economics Research Inc.

15
Table 3. Technology costs, benefits, and payback period for the average MY 2025 vehicle
purchased with cash in Canada as compared to GHG 2020 standards. All values in 2015
CAD.

Canadian consumer benefits: lifetime savings

Fuel savings continue to grow beyond the payback period and throughout the lifetime of
the vehicle. Table 4 summarizes the lifetime incremental costs and benefits of the
standards under EPA and ICCT technology cost assumptions, as well as the three fuel
price cases. The results in Table 4 are rounded to two significant digits. Following EPA’s
methodology, the payback analysis discounts to the midyear point of the first year of
ownership, which is why the technology costs are slightly lower than those shown in
Table 1 (extracted from Posada et al. (2018)30 Tables 2 and 3).
The “Reference” case in Table 4 shows that the GHG 2025 standards have lifetime
benefits that are 3 to 5 times the costs. Under EPA’s technology cost inputs, the benefit-
to-cost ratio is approximately 3, while under ICCT’s technology inputs, the ratio is
between 4 and 5. The low variation in the results is due to the relatively small differences
in fuel price scenarios. Even assuming a more conservative 7% discount rate, the
benefits outweigh the costs nearly three times over: 3.7 using ICCT inputs, and 2.5 using
EPA inputs.

30 Posada, F., Isenstadt, A., Sharpe, B., & German, J. (2018). Assessing Canada’s 2025 passenger vehicle
greenhouse gas standards: Technology deployment and costs. https://www.theicct.org/publications/canada-2025-
cafe-standards-techcost-201809

16
Table 4. Summary of lifetime costs and benefits of the average MY 2025 Canadian
vehicle, assuming a 3% discount rate (unless otherwise noted), when compared to an
average vehicle manufactured to GHG 2020 standards. (All values in 2015 CAD and
rounded to two significant digits.)

Canadian consumer benefits assuming the vehicle purchase is financed

A majority of new vehicles purchased in Canada in 2015 were financed. The average
loan term for new-vehicle purchases was more than 72 months in 2015.31 Table 5
compares the operational savings of MY 2025 vehicles manufactured to GHG 2025
standards versus GHG 2020 standards. For the purposes of this table, the financing is
defined as a 72-month loan at an interest rate of 4.25%. For comparison, Table 5 also
includes the cash purchase results presented in Table 3. As with the cash purchase, the
72-month loan assumes a 3% discount rate and Reference Case fuel prices. The vehicle
cost columns are the sum of vehicle payments, taxes, and insurance. Although the
owner of a vehicle purchased with a loan experiences higher ownership costs after the
first year, the fuel savings are the same. Under typical financing terms in Canada, a new
MY 2025 vehicle built to GHG 2025 standards has immediate off-the-lot savings
because the fuel savings are larger than the loan payments. The results of sensitivity
analyses for low and high fuel prices and a 7% discount rate show the same immediate
off-the-lot savings.

31 https://www.canada.ca/en/financial-consumer-agency/programs/research.html

17
Table 5. Consumer payback amounts and time to payback of Canadian MY 2025 vehicles
manufactured to GHG 2025 standards and purchased with cash or financed with a 72-
month loan compared to vehicles manufactured to GHG 2020 standards. All values in
2015 CAD.

Canadian consumer benefits: annual fuel savings

Another way to view the benefits of the standards is in terms of the annual fuel costs for
the owner of an average new car or truck. Since manufacturers have many pathways to
comply with the GHG standards, individual car and truck models will beat their particular
targets while others may not. However, since a manufacturer’s fleet needs to meet the
standard, on average, it is reasonably accurate to assume that the average car and truck
will meet their respective targets. Figure 6 illustrates the annual fuel savings a new-
vehicle purchaser would enjoy in 2025 if the existing vehicle GHG standards are
maintained in Canada. Benefits to Canadians from annual fuel savings range from
nearly $400 to $700 for the average car and truck, respectively.

18
Figure 6. Annual fuel expenditures for the average model year 2025 car and truck that
comply with the GHG 2025 and 2020 standards.

Societal benefits: fleet-wide fuel and emissions reductions

On a fleet-wide basis, our modeling estimates that maintaining the 2025 GHG standards
leads to 54.1 Mt CO2 saved over the lifetime of MY 2021 to 2025 vehicles compared to
the scenario in which vehicle efficiency is frozen at 2020 levels. If the standards remain
at their 2025 levels through MY 2050, these savings balloon to over 630 Mt over the life
of all vehicles sold through MY 2050. Note that showing the full benefits of the regulation
requires long-term analysis because the most efficient vehicles manufactured in MY
2025 and onward would not, upon entering the Canadian fleet, immediately displace
older and less-efficient models. The 2025 GHG emissions savings are the result of 23
billion liters of avoided fuel use over the lifetime of MY 2021 to 2025 vehicles, and 269
billion liters over the lifetime of MY 2021 to 2050 vehicles. At fuel prices used in the
National Energy Board of Canada’s Reference Case, the MY 2021 to 2025 savings are
$34.7 billion CAD.
By 2030, maintaining the 2025 GHG standards leads to annual fuel savings of 4.6 billion
liters, or $7.0 billion CAD. This level of savings is equivalent to an annual reduction in
CO2 emissions of 10.7 Mt. These annual savings increase every year as older vehicles
are replaced by vehicles that meet GHG 2025 standards. For example, by 2050, when
most vehicles in the fleet meet GHG 2025 standards, annual savings reach 10.7 billion
liters, $15.8 billion CAD, and 25.1 Mt CO2, as compared to a fleet that only meets GHG
2020 standards.
Are there any safety related considerations that should be taken into account?
In the proposed U.S. rulemaking to modify the existing fuel efficiency standards, NHTSA
projects relatively large increases in traffic fatalities, on the order of 1,000 per year.
These projected additional fatalities are used as a basis for freezing the standards at MY
2020 efficiency levels. In the following subsections, we discuss how NHTSA’s analytical

19
 methods and findings are in direct opposition to U.S. trends, which show improvements
in both vehicle efficiency and safety driven by government policy.
Vehicle fuel economy and safety have improved remarkably
Figure 7 compares annual highway fatalities per 100 million miles32 and the in-use fuel
economy (mpg) of all cars and light trucks on the road33 in the U.S. from 1970 to 2015.
The trends show reasonably steady increases in in-use fuel economic and decreases in
fatalities per 100 million miles for 35 years. The period from about 1980 to 1990 has
simultaneously some of the steepest increases in fuel economy and decreases in
fatalities. A simple linear regression of fatalities per 100 million miles as a function of in-
use fuel economy has an r-squared of 0.93. These suggest that, statistically, higher in-
use fuel economy has been strongly correlated with lower fatalities, contrary to the
claims of the US federal agencies.

U.S. Highway Fatalities and In-Use FE

30.0 6

25.0 5

Fatalities / 100 million miles

In-use FE
20.0 4
MPG

15.0 3
Fatalities / 100
million miles
10.0 2

5.0 1

0.0 0
1970 1980 1990 2000 2010 2020

Figure 7. U.S. highway fatalities per 100 million miles and in-use fuel economy (MPG),
1970—2015
(Sources: Figure 2: Motor Vehicle Fatality and Injury Rates per 100 Million Vehicle Miles Traveled, 1966-2015, Traffic
Safety Facts 2015; Table 4.3: Summary Statistics for Light Vehicles, 1970-2016, Transportation Energy Data Book,
Edition 36.1, Released April 30, 2018 by Oak Ridge National Laboratory)

The positive trends in both fuel economy and safety have been driven by government
regulations. The large majority of the efficiency improvements required by
government regulations are achieved with powertrain technology. Prominent
examples include downsizing engines for better efficiency while maintaining
performance with turbocharging, improved transmissions and additional gear ratios,
higher compression ratio for higher efficiency, Atkinson cycle engines that extract more

32 https://crashstats.nhtsa.dot.gov/Api/Public/Publication/812384
33 https://cta.ornl.gov/data/tedbfiles/Edition36_Chapter04.pdf

20
 useable work from combustion, and hybrids. But there are a host of other technologies
that also improve efficiency. In addition, there are improvements in aerodynamic design
to reduce drag, reductions in tire rolling resistance, and higher efficiency accessories
and pumps. None of these technologies affect safety in any way. Only lightweighting,
which is an important but still relatively minor contributor to overall efficiency
improvements, affects safety.
In 2007, NHTSA choose to adopt size-based adjustments instead of weight-based
adjustments because they promote better safety design. Footprint standards encourage
larger vehicles with wider track width, which reduces rollovers, and longer wheelbase,
which increases the crush space and reduces deceleration forces for both vehicles in a
two-vehicle collision. Support for the negligible impact of footprint-based standards on
safety is widespread:
 In the 2012 rulemaking adopting 2017-2025 standards, EPA and NHTSA concluded
that “the standards should not have a negative effect on vehicle safety as it relates to
vehicle size and mass.”34
 The safety analysis in the 2016 joint EPA/NHTSA Proposed Determination of the
Appropriateness of the Model Year 2022-2025 Standards found, “small net fatality
decreases over the lifetimes of MY2021-2025 vehicles.”35
 The 2015 National Academy of Sciences study that reviewed the 2017-2025
standards found that “the empirical evidence from historical data appears to support
the argument that the new footprint-based standards are likely to have little effect on
vehicle safety and overall safety.”36
 The Insurance Institute for Highway Safety has said "The Obama-era changes to the
rules, essentially using a sliding scale for fuel economy improvements by vehicle
footprint, addressed safety concerns that IIHS raised in the past."37
 Automakers themselves have noted, they are “increasingly using lightweight
materials to help meet greenhouse gas (GHG) and fuel economy standards without
having to sacrifice the safety and performance of their vehicles.”38
 The president of the Alliance of Automobile Manufacturers stated during testimony,
“The auto industry invests more than $100 billion annually in research and
development to improve vehicle fuel economy and safety, and this investment is
paying off as vehicles on the road today are safer, cleaner, and more fuel-efficient
than ever before.”39

The analysis coming out of the U.S. proposal is unprecedented—no other country or
region in the world has ever raised concerns about their vehicle efficiency standards
affecting safety.

The U.S. proposal claims that rolling back the standards will reduce traffic fatalities

34 https://www.federalregister.gov/documents/2012/10/15/2012-21972/2017-and-later-model-year-light-duty-vehicle-
greenhouse-gas-emissions-and-corporate-average-fuel?utm_campaign=subscription+mailing+list&u
35 https://19january2017snapshot.epa.gov/sites/production/files/2016-11/documents/420r16020.pdf
36 https://www.nap.edu/read/21744/chapter/2
37 https://www.bloomberg.com/news/articles/2018-02-12/safety-of-heavier-cars-may-be-used-to-lower-u-s-fuel-

efficiency
38 https://autoalliance.org/2016/01/25/car-vehicle-lightweighting-study-provides-good-insight-on-automakers-efforts-

to-increase-ghgfuel-economy/
39 https://docs.house.gov/meetings/IF/IF17/20160922/105350/HHRG-114-IF17-Wstate-BainwolM-20160922.pdf

21
 The reductions in projected fatalities estimated by the U.S. federal agencies in the
NPRM are not related to technology changes made to cars and trucks. Instead, NHTSA
and the EPA claim that if the standards are rolled back, Americans will drive less, and
there will be fewer fatalities. The agencies are using two analytical methods that lead to
increased projections of driving under the current standards, and then they are using the
increased vehicle activity to argue that accidents and fatalities will increase under the
existing standards.
The first methodological assumption with questionable veracity is the decision to double
the rate used to calculate the “rebound effect” from the rate that was used in prior
analyses—from 10% to 20%. The rebound effect is used to estimate how much more
individuals drive a car that is more fuel efficient and therefore cheaper to drive relative to
a car that is less fuel efficient and more expensive to drive. In the 2016 Draft Technical
Assessment Report, NHTSA, the EPA, and CARB found that a 10% rebound effect was
appropriate, based on the best available data.
The doubling of the rebound effect is in contradiction to both theory and data trends. The
rebound effect is not fixed; rather, vehicle owners adjust how much they drive based
upon how much they value their time and the marginal cost of driving. Improving vehicle
efficiency decreases the marginal cost of driving, making any further reductions in fuel
consumption marginally less impactful in terms of the resulting rebound effect.
While the data shows that the rebound effect is a real phenomenon, owners would not
drive more if they did not perceive economic benefits to the additional driving. In fact, the
proposed rule admits that Americans choosing to drive more should not affect the
analysis of the costs and benefits of the standards, because when people drive more,
they do so because they are benefiting from the driving. Quoting the NPRM, it is a
“voluntary consumer choice.” However, the U.S. agencies have chosen to separate the
additional accidents from the economic benefits of driving more, creating a “loss”
associated with additional accidents and fatalities, which is balanced by an “economic
benefit” of exactly the same dollar value. This faulty accounting of the externalities
associated with driving allows NHTSA and the EPA to cite the additional fatalities as
justification for freezing the standards.
The second instance of flawed methodology in the U.S. NPRM is that NHTSA and EPA
have created a new model—which uses an entirely new analytical approach that has not
been peer reviewed—to look at how changes in the cost of new cars affect the used car
market. The modeling in the U.S. proposal projects that both new and existing cars are
going to be driven much more if the standards are maintained, which defies all economic
theory. The error is further compounded because, unlike the rebound effect that the
agencies admit is due to consumers voluntarily driving more, NHTSA and EPA claim that
the increase in driving and the related fatalities are caused directly by the standards.40
Finally, note that this methodology has never been applied to any of NHTSA’s safety
regulations–it was developed specifically for the analysis used in the NPRM.
Direct impacts of lightweighting on safety
The direct impacts of weight reduction on safety are extremely small compared to the
two factors discussed in the last section but are discussed here for completeness.
NHTSA and other organizations, such as DRI and Lawrence Berkeley National
Laboratory, have analyzed the historical impacts of vehicle size and weight for the last

40 The proposed rule claims the additional fatalities are due to older vehicles with less safety features remaining on
the road longer, but the vast majority of the additional fatalities are the result of an increase in total vehicle activity.

22
 The Deputy Administrator for the National Highway Traffic Safety Administration, Heidi King,
and the Acting Administrator for the Environmental Protection Agency, Andrew Wheeler, signed the
following proposed rule on July 31, 2018, and we are submitting it for publication in the Federal
Register. While NHTSA and EPA have taken steps to ensure the accuracy of this Internet version of the
proposal, it is not the official version of the proposal. Please refer to the official version in a
15 years. NHTSA’s
forthcoming Federal Register
mostpublication,
recent study which will 2016
from appearis onincluded
the Government
in thePrinting
proposedOffice’s
rule, using
FDSys website (www.gpo.gov/fdsys/search/home.action) and on
updated data. Compared to their previous study from 2012, NHTSA’s latest safety Regulations.gov
(https://www.regulations.gov/docket?D=NHTSA-2018-0067).
analysis results in slightly lower fatalities if weight is reduced Once the official
whileversion
holdingof this
vehicle size
document is published in the Federal Register, this version will be removed from the Internet and
constant.
replaced with a link to the official version.

Table II-46
Table 6. Fatality - Fatality
increase (%) Increase (%) permass
per 100-pound 100-Pound Masswhile
reduction Reduction While
holding Holding
footprint
constant Footprint Constant
Vehicle Class306  2012  2016  2012 Report  2016 Report 
Report  Report/Draft  95%  95% 
Point  TAR Point  Confidence  Confidence 
Estimate  Estimate  Bounds  Bounds 
Lighter Passenger Cars  1.56  1.49  +.39 to +2.73  ­.30 to +3.27 
Heavier Passenger Cars  .51  .50  ­.59 to 1.60  ­.59 to +1.60 
CUVs and minivans  ­.37  ­.99  ­1.55 to +.81  ­2.17 to +.19 
Lighter Truck­based LTVs  .52  ­.10  ­.45 to +1.48  ­1.08 to +.88 
Heavier Truck­based LTVs  ­.34  ­.72  ­.97 to + .30  ­1.45 to +.02 

New results are directionally the same as in 2012; in the 2016 analysis, the estimate for 
(Source: Table II-46, The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Model Years 2021 to 2026
Passenger Cars and Light Trucks, Environmental Protection Agency and National Highway Traffic Safety
lighter LTVs was of opposite sign (but small magnitude). Consistent with the 2012 Kahane and 
Administration)
2016 Puckett and Kindelberger reports, mass reductions in lighter cars are estimated to lead to 
increases in fatalities, and mass reductions in heavier LTVs are estimated to lead to decreases in 
Overall fatality impacts due to weight reduction are small. In Table 6, none of the results
are statistically significant at the 95-percent confidence level. The direction of the change
fatalities. However, NHTSA does not consider this conclusion to be definitive because of the 
is a function primarily of the amount of weight reduction by vehicle size class. In the
relatively wide confidence bounds of the estimates. The estimated mass effects are similar 
2016 assessment, the agencies assumed that weight reduction would occur primarily in
among analyses for both classes of passenger cars; for all reports, the estimate for lighter 
larger vehicles, resulting in a tiny reduction in overall fatalities that was not statistically
passenger cars is statistically significant at the 85­percent confidence level, while the estimate for 
significant. However, in the NPRM, the agencies changed this assumption and contend
heavier passenger cars is insignificant.   
that all vehicle size classes would have the same amount of weight reduction, leading to
aThe estimated mass effect for heavier truck­based LTVs is stronger in this analysis and in 
small increase in overall fatalities, 160 per year. This assumption of constant mass
reduction for all vehicles is not consistent with historical data or projected trends. Weight
the 2016 Puckett and Kindelberger report than in the 2012 Kahane report; both estimates are 
reduction has been concentrated primarily in medium-to-large vehicles and trucks, with
statistically significant at the 85­percent confidence level, unlike the corresponding insignificant 
the Ford F150 aluminum body pickup truck being a notable example.
estimate in the 2012 Kahane report. The estimated mass effect for lighter truck­based LTVs is 
insignificant and positive in this analysis and the 2012 Kahane report, while the corresponding 
estimate in the 2016 Puckett and Kindelberger report was insignificant and negative. 
Are there changes to existing flexibilities or other new flexibilities that should be
considered to facilitate compliance with existing standards while minimizing impacts
Vehicle mass continued an historical upward trend across the MYs in the newest 
on expected greenhouse gas emission reductions?
databases. The average (VMT­weighted) masses of passenger cars and CUVs both increased by 
approximately three percent from MYs 2004 to 2011 (3,184 pounds to 3,289 pounds for 
One of the primary compliance flexibilities in the Canadian and U.S. vehicle GHG
regulation is a crediting system for so-called ‘off-cycle’ technologies. The intent of the
off-cycle crediting program is to identify and reward technologies that deliver real-world
benefits but are insufficiently counted on the official test cycle. ICCT analysis41 shows
306 
how the off-cycle credits were used in model years 2015 and 2016 in the U.S. and
Median curb weights in the 2012 Kahane report: 3,106 pounds for cars, 4,594 pounds for truck­based LTVs. 
Median curb weights in the 2016 Puckett and Kindelberger report: 3,197 pounds for cars, 4,947 pounds for truck­
assesses trends among automakers with the most credits. Figure 8 illustrates the
based LTVs. 
projected decrease in light-duty vehicle fleet emissions from 268 grams of CO2 per mile
(g/mi) in 2016 to 173 g/mi in 2025. Based on emerging trends in off-cycle credit use,
they are expected to make up a much greater percentage of automakers’ vehicle
compliance through 2025. From our analysis, 279  increased off-cycle credit use through
41 Lutsey, N. & Isenstadt, A. (2018). How will off-cycle credits impact U.S. 2025 efficiency standards?
https://www.theicct.org/publications/US-2025-off-cycle

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 2025 amounts to 18% of regulated CO2 reductions in model year 2025, with error bars
from a low of 11% to a high of 26%. These findings indicate that off-cycle credit use in
2025 will be roughly 4 to 9 times higher than what was projected by the U.S. EPA.
These results strongly suggest that automakers will be increasingly dependent on off-
cycle credits over time, and there is a risk that these credits could compromise the
deployment of other efficiency technologies. To better ensure that the off-cycle program
is delivering real-world fuel use and emissions reductions, we recommend that ECCC
make an increased commitment to 1) making the underlying data, which the credit
values are based on, publicly available; and 2) collecting comprehensive, statistically
sampled data that covers representative operating and environmental conditions.

Figure 8. Increase in off-cycle credit use as a percentage of regulated CO2 reduction.

Are there any other factors affecting the light-duty vehicle market that the department
should consider as part of the mid-term evaluation? Are there any other factors that
the department should take into account in considering the outcome of the U.S. mid-
term evaluation and the appropriateness of the existing 2022 to 2025 model year
standards in Canada?
A bifurcated LDV market in North America would occur if Canada maintains its 2025
targets, along with California and the Section 177 states, while the remainder of the U.S.
market is bound to federal standards that are significantly weakened in terms of vehicle
efficiency requirements. Under this scenario, approximately 40% of the new vehicles
sold in the Canada-U.S. market would be required to achieve the 2025 targets, and the
remaining 60% of the market would be subject to a rolled back U.S. federal regulation.

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 In Posada et al. (2018)42, the cost impacts of such a split market were estimated by
looking at the changes in production volumes and adoption rates for key fuel-efficiency
technologies. The cost of producing technologies decreases as volume increases. Unit
costs decrease as manufacturers refine their production processes, use less expensive
materials, and simplify or improve component parts. When the standards of the
combined market first splits in MY 2021, it is possible that the rate at which unit costs
decrease will slow due to less production volume.
The ICCT made use of the individual technology cost reduction-by-learning curves
developed by EPA and estimated the cost impact assuming potential volume sales
reductions driven by a bifurcated North American market. Those technology cost-
learning curves were developed by EPA for the 2012 and the 2016 regulatory impact
assessment analysis43 and were adopted for all the technology cost analysis included in
the OMEGA model. For instance, the EPA estimates that in 2020, non-hybrid, Atkinson-
cycle engines and cylinder deactivation will fall to about 90% of their cost the year after
they were first introduced—a 10% cost reduction by learning. By 2025, the cost of those
two technologies will have fallen to about 85% of their original costs—a 15% reduction
by learning. Similarly, EPA estimates that by 2020, stop-start costs will fall to about 75%
of their original value and, by 2025, drop to about 64% of their original value.
Figure 9 illustrates this concept with key fuel-efficiency technologies required to meet the
2025 targets. The solid blue curve represents a technology that is already fully learned
out by manufacturers. The cost in the year it is introduced (100%) does not change
dramatically over many years, and it decreases by about 1.5% annually. The solid brown
curve illustrates a technology that undergoes more learning after its introduction. Its
costs decrease rapidly at first, then the rate of decrease slows to about the same rate as
a fully learned technology. Each technology exhibits a particular cost impact for changes
in production rates because each technology has different levels of complexity and is
currently at different levels of market adoption levels. For example, stop-start costs,
which, under the full-learning rate would reach about 64% of original cost by 2025, could
fall to 70% of the original cost under a slower learning rate. This corresponds to a 9.2%
increase in cost for stop-start in a split market.

42 Posada, F., Isenstadt, A., Sharpe, B., & German, J. (2018). Assessing Canada’s 2025 passenger vehicle
greenhouse gas standards: Technology deployment and costs. https://www.theicct.org/publications/canada-2025-
cafe-standards-techcost-201809 (see Appendix II)
43 https://www.epa.gov/regulations-emissions-vehicles-and-engines/midterm-evaluation-light-duty-vehicle-

greenhouse-gas#TAR

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Figure 9. Full learning rates and reduced learning rates of fuel-efficiency technologies

To assess the impact of Canada’s fleet belonging to a smaller North American market with
a slower production volume rate, the ICCT estimated the cumulative production rate of
technology adoption for 2020 and 2025, and then estimated how the slower production
would affect the incremental cost of the technology. Details of the analysis, along with a
sensitivity analysis under higher and lower rates of learning, are presented in Appendix II
of Posada et al. (2018).28

Assuming that the learning rates decelerate according to the market split, under a 60%
reduction in learning rate (i.e., only 40% of the market requires additional technologies) the
majority of technologies experience a cost increase of 3% to 5%. Averaging the percent
increases, weighted by estimated 2025 market share leads to an overall cost increase of
4.7% to 4.9%, or $41 to $67. The reason costs are affected so marginally if the North
American market splits in two is that the most important technologies to meet the 2025
targets are well-known, broadly-applied improvements to conventional technologies. A
sensitivity analysis was performed to assess the impact of potential market size variations
on technology costs.28 Even under the (highly unrealistic) worst case, in which technology
costs no longer decrease after MY 2020, the average 2025 per-vehicle technology cost
would only be about 8% higher than under full-scale learning.

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 IV. Summary and recommendations
As Environment and Climate Change Canada continues its midterm evaluation to determine its
regulatory path forward, the Canada-specific technical research and policy analysis presented in this
document and several other ICCT studies offer important information for Canada’s decision-making.
The following are the ICCT’s two primary recommendations:
1. ECCC commences a rulemaking process to establish Canada-specific vehicle GHG
standards that are not formally linked to any other jurisdiction.
2. ECCC maintains the stringency of the current regulation out to 2025 and then turns its
attention to developing the next phase of vehicle greenhouse gas standards as well as
complementary policies such as those that will accelerate the large-scale adoption of
zero emission vehicles.
By creating separate standards for Canada that maintain the current vehicle GHG standards out to
2025, Canada can reap substantial environmental and economic benefits. Furthermore, this
regulatory action would establish Canada as a global leader in this space, boost Canada’s
competitiveness, and strengthen the country’s position for achieving the GHG reduction targets
for the transportation sector that were set forth in the Pan-Canadian Framework.
The following points summarize the key findings that form the basis of our recommendations.
 In the wake of the U.S. federal government’s recent proposal to weaken the stringency of
the existing 2025 vehicle GHG standards, the subsequent legal actions taken by California
and several states strongly suggest that the regulatory situation in the U.S. will be
shrouded in uncertainty for the foreseeable future. Canada’s only option for establishing
regulatory certainty for the auto industry is to create its own Canada-specific vehicle
standards.
 China, the European Union, and other major markets around the world are continuing to
implement fuel efficiency standards and other policies to promote higher efficiency and
zero emission vehicles. Creating Canada-specific standards to maintain the current 2025
regulation and developing other complementary policies will help bolster Canada’s
competitiveness globally.
 Since ECCC finalized the existing vehicle GHG regulation in 2014, the ICCT estimates
that the average cost of complying with the 2025 standards has fallen by nearly 50%. The
combination of decreasing technology costs and the emergence of several technologies
that were not considered in the original rulemaking are making the 2025 standards
increasing cost-effective, and we expect these trends to continue going forward. The table
below summarizes the main cost and benefit findings from our comprehensive analysis of
Canada’s vehicle GHG regulation.

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 Regulatory impact summary Value*

Cost per vehicle to meet GHG 2025 standards over cost to meet GHG EPA: $1,368
2020 standards, in Canadian dollars, based on EPA and ICCT data. ICCT: $865

Payback period 2 – 4 years

Lifetime fuel savings for the average driver $5,500

2030: 10.7 Mt
Annual fleet-wide CO2 reductions
2050: 25.1 Mt

2030: 4.6 billion liters

Annual fleet-wide fuel savings
2050: 10.7 billion liters

2030: $7.0b
Monetized annual fleet fuel savings
2050: $15.8b

* Monetary values are in 2015 Canadian dollars.

 Remaining aligned with the U.S. (and thus freezing vehicle efficiency targets at MY 2020
levels) would put in jeopardy roughly 11 Mt of the 15 Mt of GHG reductions that Canada
needs from the transport sector in order to meet the 2030 targets set forth in the Pan-
Canadian Framework.
 In their proposed rulemaking to modifying the existing vehicle GHG and fuel economy
standards, the U.S. EPA and NHTSA employed unvetted analytical methods for assessing
the externality impacts of the 2025 regulation that have never before been used in the U.S.
or any other jurisdiction. A thorough analysis of the literature reveals that the current 2025
standards are expected to have negligible effects on vehicle safety, and there is no
evidence to support the claim that the existing standards will result in a significant increase
in accident-related fatalities.
 ICCT research provides evidence that automakers will be increasingly reliant on off-cycle
credits to comply with vehicle standards out to 2025. Our findings suggest that all of the
manufacturers have ample flexibility mechanisms in place to successfully comply with the
2025 regulations. To strengthen the robustness of the off-cycle crediting program, we
suggest an increased commitment to data transparency and that the regulatory agencies
in Canada and the U.S. ensure that off-cycle technologies have verifiable real-world fuel
and emissions benefits.
 A bifurcated regulatory situation would occur if Canada maintains its 2025 targets, along
with California and other progressive states, while the remainder of the U.S. market is
bound to rolled back U.S. federal standards. Under this scenario, we estimate the average
compliance costs to achieve the 2025 standards would increase by less than 5%.

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