Fleet average NOx standards and reporting requirements for light-duty vehicles: chapter 5

Chapter 5: NOx Emission Credits and Deficits

• 5.1 What are NO_x emission credits and deficits?
• 5.2 How are NO_x emission credits and deficits calculated?
• 5.3 When are NO_x emission credits obtained?
• 5.4 What can a company do with the emissions credits that it has obtained?
• 5.5 Is there a deadline by which a company is required to offset an NO_x emission deficit?
• 5.6 How can a company offset an NO_x emission deficit?
• 5.7 Is there any consequence for taking the full three years to offset an emission deficit?
• 5.8 What happens to outstanding credits and deficits when a company purchases another company or when companies merge?
• 5.9 What happens to an outstanding deficit for a company that ceases to manufacture, import or sell vehicles?
• 5.10 Are the NO_x emission credit and deficit provisions affected by a company's election to exclude a group of vehicles from compliance with the fleet average NO_x standards?

5.1 What are NO_x emission credits and deficits?

NO_x emission credits are obtained when a company's fleet average NO_x value for a given model year and a given fleet is lower than the applicable fleet average NO_x standard. Similarly, NO_x emission deficits are obtained when the fleet average NO_x value is higher than the fleet average NO_x standard. These provisions are set out in subsection 26(1) and section 28 of the Regulations.

5.2 How are NO_x emission credits and deficits calculated?

A company's fleet average NO_x value may be at, below or above the applicable fleet average NO_x standard in any given model year for a specific fleet of vehicles.

As set out in subsection 26(2) and section 28 of the Regulations, the equation used to calculate emission credits and deficits is the following:

Where

• A represents the fleet average NO_x standard;
• B represents the average NO_x value in respect of the fleet; and
• C represents the total number of vehicles in the fleet.

The number obtained from the equation will be negative, if the company has obtained NO_x emission deficits during that model year, and positive, if it has obtained NO_x emission credits. A zero value will mean that the company will obtain neither deficits nor credits, as its fleet average NO_x value would be equal to the fleet average NO_x standards. This would always be the case where a company elected not to calculate a fleet average NO_x value under section 25, as the fleet average NO_x value would be deemed by the company to be equal to the fleet average NO_x standard.

5.3 When are NO_x emission credits obtained?

NO_x emission credits for a specific model year are credited on the last day of the model year, as stipulated in subsection 26(3) of the Regulations. Emission credits obtained by a company have an unlimited life (i.e., are not discounted over time).

5.4 What can a company do with the emissions credits that it has obtained?

Section 27 of the Regulations provides that emission credits can be used to offset existing or future emission deficits or be transferred to another company. Emission credits obtained by a company in a specific model year must be used by the company to offset any outstanding deficits (i.e., a company cannot carry forward any emission credits to a subsequent model year if it has an outstanding deficit). A company can use credits obtained from a fleet of light-duty vehicles and light light-duty trucks to offset a deficit incurred by its fleet of heavy light-duty trucks and medium-duty passenger vehicles, and vice versa.

5.5 Is there a deadline by which a company is required to offset an NO_x emission deficit?

Yes. As set out in subsection 29(1) of the Regulations, any NO_x emission deficit must be offset by a company no later than the date it submits its end-of-model-year report for the third model year after the model year in which the deficit was incurred. For example, if a company incurred a deficit for the 2005 model year, it has to offset that deficit no later than the date on which its 2008 end-of-model-year report is submitted.

5.6 How can a company offset an NO_x emission deficit?

Subsection 29(2) of the Regulations provides that deficits can be offset with an equivalent number of NO_x emission credits earned by the company in previous model years, during the next three model years and/or by obtaining a sufficient amount credits from another company.

5.7 Is there any consequence for taking the full three years to offset an emission deficit?

Yes. If there remains a deficit outstanding on the date of the submission of the end-of-model-year report for the second model year after the year in which the deficit was incurred, the company is required to offset 120% of the remaining deficit in the next model year.

For example, consider the case of a company incurring an NO_x emission deficit of 3000 vehicle-grams per mile in the 2005 model year, and using obtained credits of 1000 and 1500 vehicle-grams per mile to partially offset the original deficit in the 2006 and 2007 model years, respectively. In this situation, the company would have an outstanding deficit of 500 vehicle-grams per mile after the second model year (i.e., 3000 minus 2500) and would be required to use 600 vehicle-grams per mile of credits in the 2008 model year to fully offset the original deficit incurred in the 2005 model year (i.e., 120% of the outstanding deficit of 500 vehicle-grams per mile after the second year). This is set out in subsection 29(3) of the Regulations.

5.8 What happens to outstanding credits and deficits when a company purchases another company or when companies merge?

Subsection 30(1) of the Regulations stipulates that a company that purchases another company or that results from a merger of companies is responsible for offsetting any outstanding deficit from the purchased or merged companies.

5.9 What happens to an outstanding deficit for a company that ceases to manufacture, import or sell vehicles?

As required under subsection 30(2) of the Regulations, the company would have up to three calendar years after its last end-of-model-year report to offset any deficit outstanding at the time the company ceased its activities.

5.10 Are the NO_x emission credit and deficit provisions affected by a company's election to exclude a group of vehicles from compliance with the fleet average NO_x standards?

Yes. See Chapter 6 for details.