Reply to Comments on Submissions Received on the Proposed Amendments to the Sulphur in Diesel Fuel Regulations

Appendix B

Second Submission by Yukon's Ministry of Energy, Mines and Resources

Office of the Minister

Box 2703, Whitehorse, Yukon Y1A 206

April 15, 2005

The Honourable Stéphane Dion
Minister of the Environment
Les Terrasses de Ia Chaudierre
10 Wellington St., 28 th Floor
Hull, Quebec KIA 0H3
Fax: (819)953-3457

Dear Minister Dion:

Re: Amendments to the Sulphur in Diesel Fuel Regulations

Thank you for the opportunity to contribute Yukon's perspective on Canada's proposed amendments to the Sulphur in Diesel Fuel Regulations.

The Yukon government supports placing further restrictions on the content of sulphur in marine, rail and off-road diesel. Moreover, we believe the proposed amendments will meaningfully help improve air quality and protect human health in Canada.

However, on behalf of Yukoners, I wish to formally request that the imposition of the stricter sulphur limits be phased-in over a longer time period in the Yukon. More specifically, I propose that the Yukon be exempt from the new amendments until January 1, 2010 and thereafter, the new 15mg/kg sulphur content threshold be applied in Yukon.

The Yukon government has participated in studies and worked with Northern Cross ( Yukon ) Limited since 2000 toward the development of a crude oil refinery in the Territory. Northern Cross is now in the midst of moving forward with plans to build a small scale-refinery and begin production and refining of shut-in light crude oil reserves at Eagle Plain. The principal refined product will be diesel fuel oil for off-road consumption in Yukon.

Northern Cross' proposed refinery offers the Yukon an excellent opportunity to advance its self-sufficiency and displace high cost imported fuels. The Yukon has traditionally had a mining based economy; with strengthening metal prices and five new mines in the offing, the Yukon government is actively pursuing a strategy to re-establish this sector. A cornerstone of this strategy is to assist the mining sector with access to lower cost energy sources as energy represents up to one-third of total operating costs of a mine.

Eliminating the current high transportation costs required to import fuel effectively "lowers the economic bar" for the Yukon's resource sector.

The Yukon's economic recovery is presently fragile. The development for a low cost energy source to serve the mining sector is key. The imposition of stricter sulphur requirements has the potential of postponing or halting Northern Cross' refining project and ultimately jeopardizing new mine development.

As an alternative to delaying the imposition of stricter sulphur limits in the Yukon , the Yukon government would support federal funding arrangements that address Northern Cross' concern associated with the incremental capital costs of sulphur removal. I understand that preliminary discussions regarding the possibility of federal funding to cover the costs of a sulphur recovery unit for the proposed refinery have occurred between federal and Northern Cross officials.

I appreciate the opportunity to outline the Yukon's concerns respecting the proposed changes to the Sulphur in Diesel Fuel Regulations. I look forward to your response. Thank you.

Sincerely,