THE STANDING SENATE COMMITTEE ON AGRICULTURE AND FORESTRY
EVIDENCE
OTTAWA, Thursday, September 21, 2023
The Standing Senate Committee on Agriculture and Forestry met this day at 8:59 a.m. [ET] to study Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act.
Senator Paula Simons (Deputy Chair) in the chair.
[English]
The Deputy Chair: Good morning to everyone who is able to join us. I would like to begin by welcoming the members of the committee and our witnesses, as well as those watching this meeting on the web and in the room.
[Translation]
Welcome, everyone, and all those watching us on sencanada.ca.
[English]
My name is Paula Simons. I’m a senator from Alberta, Treaty 6 territory, and I am the deputy chair of this committee.
[Translation]
I’d like to begin by asking the senators around the table to introduce themselves.
[English]
Senator Cotter: Good morning. I’m Brent Cotter, a senator from Saskatchewan.
Senator MacAdam: Jane MacAdam, senator from Prince Edward Island.
Senator Burey: Good morning, everyone. Sharon Burey, senator for Ontario.
[Translation]
Senator Dalphond: Good morning, everyone. Pierre Dalphond, from the senatorial division of De Lorimier, in Quebec.
[English]
Senator Woo: Good morning. Yuen Pau Woo from British Columbia.
Senator Yussuff: Good morning. Hassan Yussuff, senator from Ontario.
Senator Galvez: Hello. Senator Rosa Galvez from Quebec. I am substituting for Senator Petitclerc today.
Senator Loffreda: Good morning, everyone. Welcome to the witnesses. Senator Tony Loffreda from Montreal, Quebec.
Senator Oh: Good morning. Senator Oh from Ontario.
The Deputy Chair: Today, the committee is meeting on Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act. On the first panel, our witnesses are the Honourable Senator David M. Wells, the Senate sponsor of the bill; and Ben Lobb, Member of Parliament for Huron—Bruce, who is the sponsor of the bill in the House.
We will hear opening remarks from Senator Wells, followed by Mr. Lobb. You will each have five minutes for opening remarks. I will signal by raising one hand when you have one minute left, and I will raise both hands when your time is up. The floor is yours, Senator Wells.
Hon. David M. Wells, sponsor of the bill: Thank you, chair, and good morning, colleagues. It’s my privilege to appear today as the Senate sponsor of Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act.
I’d like to start by thanking my parliamentary and Conservative caucus colleague MP Ben Lobb for introducing this bill in the other place, and noting the remarkable cross-party cooperation that has brought us here today. In a world where partisan divisions can often be the norm, the journey of Bill C-234 is a testament to the shared understanding of its significance and its importance to agriculture. Parliament can be a contentious place, and I believe the cross-party support for this bill speaks volumes, in spite of some of the opposition put up by the government.
In its current form, the Greenhouse Gas Pollution Pricing Act seeks to address climate change. It has taken into account the unique position of farmers by exempting fuel used in their machinery. However, as is often the case with comprehensive legislation, there are gaps which this bill seeks to address. The act in its current state fails to acknowledge the indispensability of natural gas and propane — which are transition fuels, colleagues — in crucial on-site farming activities, notably in grain drying and barn heating and cooling.
Farming is a profession full of uncertainties — whether it’s unpredictable weather patterns or fluctuating market prices. Unlike many sectors, farmers often find themselves in a position where it’s not possible to pass on increased operational costs to the consumer. This places a disproportionate burden on our farmers, our ranchers and our growers. Without commercially or industrially viable energy alternatives, they face a dual dilemma. On one side, they are committed to sustainable practices, and, on the other, they are financially penalized for using the only tools currently available to them.
These are not just abstract concepts. These are tangible financial strains that directly impact the livelihoods of our farmers, ranchers and growers.
By way of example, one broiler chicken farmer sent me the actual costs he’s currently paying for carbon tax. Those costs are currently over $10,000 per month, and will rise to over $40,000 per month when the tax reaches $170 per tonne — resulting in a cost of over a quarter million dollars per year out the window with no benefit to the operation. Because of their operation’s dependency on natural gas, this results in increased costs which cannot be recovered and threatens the viability of their operation.
This is not an isolated story, colleagues. It is one I’ve heard repeatedly from every sector of agriculture. Overall, the added cost of the carbon tax has the potential to siphon billions from our agricultural sector, which represents a direct reduction in the capacity of farmers to reinvest in their operations; last week’s report from the Parliamentary Budget Officer, or PBO, mentioned almost $1 billion. Without Bill C-234, we are effectively hampering the ability of our farmers, ranchers and growers to invest in newer, greener technologies and processes — a paradoxical outcome for a tax that aims to promote environmental sustainability.
I want to be clear: The essence of Bill C-234 is not to challenge the validity of the carbon tax as a whole. Climate change is an undeniable reality, and remedial measures are crucial in our fight against it, but it’s our duty to ensure that these measures are applied fairly. The proposed amendments to the Greenhouse Gas Pollution Pricing Act, as encapsulated in Bill C-234, are not sweeping changes, and they don’t challenge the concept of the tax. They are targeted and they are narrow, but they have the potential to bring about a profound positive impact.
This is not a call to dilute our environmental responsibilities. Rather, it’s a plea to recognize the unique position of our farmers, ranchers and growers, and to give them tools to thrive as they work within a framework of environmental responsibility.
In closing, colleagues, I urge this committee to support Bill C-234. In doing so, you are not just supporting a piece of legislation, but also supporting a more sustainable future for our farmers — ensuring the continued vitality of our agricultural sector, and recognizing the fine balance that must be struck between our environmental goals and economic realities.
Thank you.
The Deputy Chair: Thank you very much, Senator Wells. Mr. Lobb, the floor is yours.
Ben Lobb, Member of Parliament for Huron—Bruce, sponsor of the bill: Thanks very much, Madam Chair. It’s an honour to be here this morning to present my private member’s bill: Bill C-234.
Basically, this is the idea behind this bill: A number of years ago, when the Greenhouse Gas Pollution Pricing Act was introduced — that brought in the carbon tax — there were carve‑outs and exemptions. It listed diesel and gasoline on-farm; I think it was an oversight at the time. I’m sure the government would admit — behind closed doors — it was an oversight that they left out propane and natural gas. That’s really the idea behind it.
There are a few uses for propane and natural gas on-farm, as I’m sure you well know, which includes the drying of grains. In a few weeks in my area, soybeans will start to be harvested, and, in another month, corn will likely be harvested. It’s time sensitive. It has to be dried to a certain percentage, and the best and most efficient way to do that is to use propane and natural gas to dry the corn out.
In a few months from now, livestock barns across Ontario — my home province — and across the country will need to be heated to protect the livestock in which they house. If you look at the poultry industry, it’s critically important to maintain the temperature — especially when new chicks are brought into a broiler operation — at over 80 degrees. It might surprise you that it needs to be that warm to heat the barn, but, in order to maintain the safety and viability of that new crop, it needs to be that temperature. That’s the case in hog barns, specifically farrowing barns, and wiener barns as well — it must be warm for the small pigs. The only way to do that is to use propane or natural gas.
This is the idea behind the bill: to help farmers out. In my home province, agriculture is the number one economic driver; there’s no doubt about that. Across the country, it’s one of the top economic drivers. Anything that we can do to help a farmer also helps Canadians, helps Canadian society and, at this economic time, helps cut costs and reduce inflation on the consumer at the grocery store or at the farmers’ market.
Senator Wells touched on one topic that I thought was important — actually, he touched on a number of topics, but he talked about the rebate. A couple of years ago, Bill C-8 was brought in to address the inequity of the bill — it’s the rebate, which is $1.73 per thousand of allowable eligible expenses. If you look at it in context, it’s a pittance. On $1 million of the allowable eligible expenses that you’d have on a farm, that’s $1,730. There are countless examples of bills that would be a carbon tax of $8,000, $9,000 or $15,000, and the rebate represents a fraction of that. It’s about 12% or 15%, or whatever it is. It’s not enough.
Everything else is compounded. This is one opportunity for the Senate to get behind, and actually help somebody down a country road in order to make their farm operation a little more viable.
The last thing I’ll say is that farmers, from a financial perspective, are not price makers. You folks all know that. They are price takers. The market is set. It’s a worldwide market based on a price locally out of Chicago. They take that price; they are price takers. Anything we can do to help cut their costs helps the bottom line. Since my bill has been introduced, we’ve had high inflation. Interest rates have been increasing. Everything on-farm costs more now. This bill helps address that issue.
This bill also addresses the issue of whether it’s ethical. Is it ethical to charge a carbon tax on a farmer who does a tremendous amount of environmental good on their farm? There are countless things that farmers do on their farms — including crop rotation, ethical forest and woodlot management, manure management, environmental farm plans and ethical crop rotation — and they don’t get credit for it. They do it for the good of their farms and, subsequently, for the good of society.
Thank you for your time. It’s an honour to be here today. If you have any questions, hopefully I can answer a few of them.
The Deputy Chair: Thank you, Mr. Lobb, and thank you again, Senator Wells.
We will now proceed to questions from our senators. Before asking and answering questions, I would ask members and witnesses in the room — when using the headset translation device — to please refrain from leaning in too close to the microphone, or remove your earpiece when doing so. This reduces the likelihood of sound feedback that could zap the ears of our interpreters.
As in our previous practice, I’d like to remind each senator that you have five minutes for your questions, and that includes the answer. I invite everyone to keep the preambles to your questions neat, and for witnesses to remember that the five minutes include your answer.
Senator Oh: Thank you, witnesses, for being here. My question for you is this: The government claims the purpose behind the carbon tax is to change behaviour by moving away from the consumption of fossil fuels toward renewable energy. There is no commercially viable option — instead of using natural gas or propane — for things like grain drying, nor is there a viable option for tractors, which are currently operating on diesel fuels. How can farmers change their consumption of fossil fuels when these alternative sources of renewable energy are not yet available for the industry to the degree in which they would be needed?
Mr. Lobb: Thanks for your question, Senator Oh. I should note that Senator Oh attended the Zurich Bean Festival in my riding this summer. That was great for him to get out into rural Ontario.
You make a great point: There are no commercially viable opportunities to dry grain or heat a barn — there’s nothing that’s economically viable. That’s why the Green Party voted for my bill; Elizabeth May voted for my bill. The entire caucus of the NDP and the entire caucus of the Bloc Québécois voted for my bill. There were a few Liberal members of Parliament as well — but not too many — who voted for the bill, recognizing the fact that there are no viable options at this time.
In addition, in showing flexibility, we put an eight-year sunset clause on my bill. In time, if there are advances or some breakthrough, the bill can be reviewed in eight years. The Green Party and the NDP and, I believe, the Liberal Party and the Bloc Québécois wanted that, so we put it in there, and I think that’s fine and that’s good. Give it a chance. If there is a breakthrough, then there can be some change down the road.
Senator Wells: Senator Oh makes a key point, and that is the following: when there are no viable alternatives. Farms aren’t contained in cities where multiple types of fuel are often available. They’re in the most rural parts of Canada where there are not always pipelines or non-transportable fuel options. One of the things about propane is it’s very transportable. For a rural farmer — whether it’s in northern or southern Alberta, or anywhere in Canada where it’s a rural environment — there is no alternative. That’s the method that they use.
The interesting thing for me, Senator Oh, is this: For this to change the behaviour of farmers, ranchers and growers — to use more environmentally friendly fuels — you would think that the exemption would not be given to diesel and gasoline, but that, in fact, it would be given to propane and natural gas. This shows that there was an oversight in the original legislation which provided that exemption for diesel and gasoline.
Senator Oh: Yes, I was very lucky to visit your beautiful coast in southwestern Ontario a few weeks ago in order to meet some of the farmers.
Different types of agricultural operations utilize very different amounts of natural gas and propane. Some, such as broiler chicken operations, use more than others. Since the current rebate is distributed to farmers based on overall expenditures, and has no direct connection to what they actually spend on the carbon tax, would you agree that this is a very inefficient way to bring carbon tax relief to farmers?
Mr. Lobb: Yes, you’re right; it is. You could have a farmer who uses very little carbon — for example, a bee farmer with a cow-calf operation who would use virtually no propane or natural gas inside their barn if they’re using an old bank barn. Yet, they would be allowed to claim because they have the eligible expenses. That is a shortcoming. We have our officials here; I don’t know if the Canada Revenue Agency, or CRA, officials want to comment on that as well, but I do think that is a shortcoming.
I will go back to this again: Is it ethical to charge a carbon tax on farmers who don’t receive a fair and equitable benefit for what they do for the environment?
Senator Loffreda: Thank you to our witnesses for being here. I would welcome further elaboration on this issue: In its 2021 budget, the federal government announced it would return a portion of the proceeds from the federal fuel charge to eligible farmers via refundable tax credits, and make funding available for farmers to purchase more efficient grain dryers.
I’ll ask my supplementary questions, and then give you time to answer: Given these initiatives, why is a blanket exemption necessary for natural gas and propane use on farms? What barriers, if any, do farmers face in buying and operating more fuel-efficient grain dryers? What barriers, if any, do farmers face in heating and cooling barn buildings more efficiently?
Mr. Lobb: First, on the grain drying, if you talk to any farmer, or if you go to any meeting or annual general meeting in the wintertime, they’re always reinvesting in their farm operation. The reason is they want to have the most efficient option. If you recently purchased a grain dryer for your farm, you’re not going to buy another one. These are multi-year acquisitions, and you need them over a period of time.
Yes, there are more efficient dryers. The dryers today are more efficient than the dryers from 10 years ago, and they were more efficient than the dryers from 30 years ago. That’s just the reality of innovation, but we go back to the viability of using an alternative source.
The other thing you mentioned was the barns. If you check out a modern hog barn, broiler barn or layer barn, they are as well insulated as your home. There’s a building code; everything’s there, and it’s insulated.
Yes, if you go to Old MacDonald’s farm, where the kids go, and it’s an old bank barn built 100 years ago, there’s no insulation in that. There was never meant to be insulation in that. It’s now housing sheep or cattle. Newer barns are all insulated, adhere to the code and are very well made.
Senator Wells: I want to follow up on Mr. Lobb’s answer regarding the barriers to obtaining new grain dryers. He’s absolutely correct, but it’s rare that someone who operates a grain dryer will buy the grain dryer with cash. They will amortize that over 25 or 30 years, or whatever arrangement they have with the bank. You would be familiar with those practices, senator.
In regard to the financing of it, it’s like having to buy it twice if you’re going to buy other, newer technology. As Mr. Lobb said, when they make this commercial purchase, they’re getting the best they can get. It’s being amortized over 25 or 30 years — the financing of it is an impediment to upgrading.
Farmers are stewards of the environment; that’s certainly well known in Canada. They are also stewards of their business. They want to have the best and most efficient sources, whether it’s for drying, heating or cooling their barns. That’s why insulation is used: You don’t want to spend your money on heating when you know you’re going to lose some of that heat. You don’t want to spend it on cooling when you know you’re going to lose some of that as well.
You want your dryers to be efficient; they’re very time sensitive.
Senator Loffreda: So refundable tax credits are not sufficient?
Senator Wells: Yesterday, I spoke with a farmer who uses a corn grain dryer, and he said he was getting ready to dry. He said that, right now, with all the rain — and perhaps this ties in with climate change and the differences that we’ve all seen — his percentage of moisture from harvest is around 30% to 40%. I think he said they need it down to 11% to 13%. They have no choice but to do this.
They don’t need to do it every year. During many years, they need to do it, but, in order to stop it from spoiling and to reduce the weight for transport, they have to get it to the industry standards. That’s what they’re faced with.
Mr. Lobb: I have just one more point on that refundable tax credit: If you think about it, why would you even do it? Just get rid of the tax. There’s no carbon tax on diesel or gasoline, so why are we creating this crazy level of bureaucracy to prove nothing in a way? Just get rid of it. It was an oversight, in my belief and in many people’s belief. Take it off, review it in eight years, see if it still makes sense and then let Parliament — at that time — decide if it’s a good idea or a bad one.
Perhaps if there were one on diesel and gasoline, you could maybe see it, but there’s an exemption on-farm. It’s limited; it includes your agricultural buildings that would house livestock and your dryers. It’s very limited.
Senator Galvez: Thank you so much for your explanations. We all feel for farmers and people in agriculture. That’s what my grandparents in the Andes were doing. It was wonderful and beautiful to see how they were applying circular agriculture at the time. I will come back to that.
You know that this type of bill sends a signal. Carbon tax is a market signal, and Conservatives are very strong on market signals. This is a market signal.
I’m happy to hear you will be leading on climate change. Yes, indeed, the agricultural sector is very much impacted by climate change. It starts with humidity, floods and droughts. They have to adapt. Actually, they are the sector that has to adapt the fastest as possible.
B.C. started its carbon tax in 2008, and, after five years of working on this, they had a five-year review. They concluded that neither the profits nor the competitiveness of the agricultural sector were touched by the carbon tax.
I would like to know where the numbers come from in regard to the idea that it will impact.
There are several rebates and exemptions that have been given. If you find that it is an impediment, and there are only a few rebates, why is there not a motivation — for us — for more? There is a rebate for connected solar panels. Why not ask for more on the rebate?
The other thing is that the agricultural sector produces an enormous amount of organic waste that can be used for biodigesters. They use it in Quebec and high in the mountains in the Andes. With the waste, they produce biofuel.
Why do we want to send a signal that will disturb and create expectations for more exemptions when we can really push for more adaptation and regenerative agriculture practices?
Mr. Lobb: With all due respect, if you look at what the Parliamentary Budget Officer tabled last week, that’s a billion dollars over eight years of costs that you’re adding to farmers from Alberta to Ontario. When you add that kind of expense to a farmer, and ask them to compete against farmers in Michigan, Illinois or Ohio, you are putting them at a competitive disadvantage. That’s a fact; everybody knows that.
In regard to the technology that you’re talking about — the biodigesters and so forth — that’s fine, but those are very small scale and high cost per kilowatt; I hate to tell you that. It’s not as financially efficient as a propane-fired or natural gas-fired dryer or heater in a barn. That is a fact. We cannot put biodigesters and so forth on every farm, down every country road, that has a grain dryer. That’s not economically viable. The government shouldn’t be financing something like that, either.
Here, we are talking about a carbon tax on propane and natural gas where there’s already a carve-out for diesel and gasoline. The bottom line is that’s what we’re talking about here today.
Senator Wells: I would like to add to that, senator, in regard to the question about using solar or other sources of energy, such as wind: I visited a chicken farm in southern Alberta over the summer. It’s an eight-week cycle of getting the eggs to chicken out the door. They need to maintain a temperature of 87 degrees Fahrenheit — he told me this number in Fahrenheit, so that’s what I’ll say — and it must be kept at that temperature. In the winter, you can’t rely on the good luck of weather, especially in these climate change times that we have.
There’s no alternative to the mechanical methods that we’re talking about. And that’s specifically propane — he didn’t even have access to natural gas; there wasn’t a line that went to his farm.
The Deputy Chair: Thank you very much. I’m sorry; you can ask a question during the second round.
Senator Woo: Thanks, witnesses.
What is your estimate of the increase in greenhouse gas, or GHG, emissions as a result of this bill, and of removing natural gas and propane from the pricing system that we have in place?
Mr. Lobb: Zero.
Senator Woo: There’s no increase —
Mr. Lobb: In emissions? There is zero.
Senator Woo: Compared to —
Mr. Lobb: There is zero. In fact, over time, it would be less because of the innovation in grain drying technology. That’s just a fact. There are so many billions of bushels produced a year, and so many millions of bushels a year that need to be dried, and that’s long, time-tested and true. Going back 50 years, that’s just the facts.
Senator Woo: Hang on. We’re talking about —
Mr. Lobb: Using propane and natural gas to dry corn or soybeans.
Senator Woo: It would not increase GHG emissions?
Mr. Lobb: No.
Senator Wells: I think Mr. Lobb is saying that the exemptions will not change the GHG emissions. They will still use the fuels they use — natural gas and propane — because there’s no reasonable alternative. The use will still be the same; it’s just that the money will not be taken from the farmer. In fact, the farmer — who I mentioned — said it’s going to cost him $250,000 per year. He’s still going to use propane. That won’t change for the foreseeable future because he’s got new equipment, and he’s amortizing that over 30 years, which he told me. Once the carbon tax is $170 per tonne, he will be paying $250,000 a year using the same fuel he’s using now. That’s less money coming out of his pocket, and the same amount of emissions going into the atmosphere.
Mr. Lobb: The biggest impact would be a dry fall or a wet fall. That would be the biggest impact on how much natural gas and propane are used, as well as any emissions that would come off a dryer.
Senator Woo: You’re assuming there would be no innovations that would reduce the amount of GHG emissions in the absence of these changes to the Greenhouse Gas Pollution Pricing Act. You’re assuming everything would be the same. If this bill is not passed, nothing would change over the next eight years, and farmers would do exactly what they’re doing relative —
Mr. Lobb: The question you asked me was regarding how many emissions are going to increase if we take this out.
Senator Woo: Yes.
Mr. Lobb: And I said the emissions aren’t going to increase. If anything, they’re going to decrease because of improvements in dryer innovation — just like it has 10, 20 and 30 years ago. If you look at the way livestock barns are laid out, and take a look at one innovation, I encourage this committee to take a look at solar walls. Many farmers in my riding and across the country have done this. If you see a chicken barn or a layer barn with black steel on two sides of the barn, that’s a solar wall. This is an innovation within the last 10 or 20 years that wasn’t there before.
Farmers are the most innovative, and the market is there behind them. There are huge commercial, industrial worldwide innovations that take place every year. Farmers here are always doing it. If you go into my area, it is the most innovative area in all of Canada for agriculture.
Senator Woo: Do you believe that farmers respond to price signals, and, if prices go up, would they be innovating even faster?
Mr. Lobb: In this economic climate, where you see that interest rates have increased, and now you have — over the next eight years — a billion dollars of carbon taxes they’re going to pay, that’s taking money out of their viability. That’s taking money away from them where they could afford to make improvements. You’re tying one arm behind their back; that’s my opinion.
Senator Woo: What is your estimate of the share of natural gas and propane in the total cost of a crop or a poultry farm?
Mr. Lobb: What is the —
Senator Woo: What is the share of natural gas in the total cost of a farm that’s affected by this bill?
Mr. Lobb: Is your point that the carbon tax is insignificant to the total cost?
Senator Woo: I’m asking the question.
Mr. Lobb: If you compare it to the cost of financing a new combine, tractor, planter or sprayer, the cost of the carbon tax wouldn’t be as high — that’s pretty obvious. The point is this: If you take a look at it, that’s a billion dollars over eight years. That’s big money, and you’re taking it out of the bottom line of a farmer. These aren’t software companies or Shopify with a 50% profit margin. They’re operating on 3% to 5% profit margins. If you knew how many dollars it takes to make one dollar of profit — in order to be a farmer — you’d never be a farmer because it’s too capital intensive to make a dollar. That’s the bottom line for that.
Senator Woo: I take it you don’t have the answer for me.
The Deputy Chair: I’m sorry; Senator Woo, you’ve exhausted your time. I can put you on the second round if you would like.
Senator Woo: Not for now, thanks.
Senator Dalphond: I have two questions: My first one is for Senator Wells. You referred to the price costs to eat or dry grains this fall. When you referred to the increased costs because of the tax, did you take into consideration the cost of the commodity? Natural gas is being delivered in Ontario — at this time of the year — at about $23 per cubic metre. A year ago, it was $36 per cubic metre.
Are you saying that the farmers in Ontario are worse off this year using natural gas than they were last year?
Senator Wells: Thanks for your question, Senator Dalphond. I don’t think I mentioned the specific price for the fuel. What I did mention — with respect to grain drying — is that this year, in particular, it’s going to be more expensive because it has been a wetter year, so there’s more drying required. That’s where the increased cost is.
And, of course, if there’s more drying required, there’s more fuel in the form of propane and natural gas being used, so there is more carbon tax being taken from their bottom line. It’s more expensive to get the product to the finished state of between 11% and 13% — and, because of that, there is more money being kept by the government. That was the only reference I made to the pricing.
Certainly, it’s more expensive this year. The farmer told me that we’re getting the corn at 40%. We have to bring it down to between 11% and 13%. It will cost them more.
Senator Dalphond: When you use the gas to heat the farm, do you think it’s going to be more expensive this year than last year, considering the price is down $13 per cubic metre?
Mr. Lobb: If I can answer that one, it depends on the temperature and the weather. If it’s a wet fall, and your corn has a high moisture content, there’s a very good chance it could be quite a bit more than it was last year. If it’s a dry fall —
Senator Dalphond: And if it’s the other way around, it would be less?
Mr. Lobb: Exactly. But that has nothing to do with the carbon tax on drying crops and heating your livestock barns. That’s what we’re talking about. We’re not talking about the weather. We’re not talking about the world price of natural gas, or the viability of fracking natural gas in Pennsylvania, Ohio or the world markets. We’re talking about if it makes sense to charge a carbon tax on a farmer who makes food.
Senator Dalphond: I think that’s what you’re saying. You say the truth now, and I’m not saying you didn’t before. This is the true message you want to give us. We were told a few minutes ago — during your presentation — that farmers need a break with inflation and everything else.
Mr. Lobb: Exactly.
Senator Dalphond: The price is not about the natural gas price.
Mr. Lobb: The price is not about the natural gas price? Well, the price — on natural gas and propane — goes up and down.
Senator Dalphond: Yes, but if you’re paying one third less this year, are you saying they still need a break for natural gas?
Mr. Lobb: It is in the production of food. There’s already a carve-out for diesel and gasoline. What we are asking for here is a carve-out for propane and natural gas to dry grain, regardless of the temperature and regardless of the price — because there is already a carve-out.
The point is this: Are we listening to the farmers? Are we trying to help the farmers out, or are we trying to make some sort of argument make sense in our heads? No, we’re trying to help the farmers. That’s what we’re trying to do in order to make their operations viable, especially at this time in the economic cycle. We have high inflation and high interest rates. We have challenges across the world. Farmers are price takers, like I said.
If there’s anything we can do to help a farmer, that’s what we should do. Like we said, we think it’s an oversight — right from the very beginning — that they missed out on propane and natural gas. Diesel and gasoline are already in there.
Senator Wells: In that specific example, Senator Dalphond, yes, they would be paying less in fuel costs. But as you know, on a farm, there are other variables that affect costs — as Mr. Lobb was speaking, I was jotting them down. Obviously, one variable is weather. If you have higher wind, you’ll have dryer grain; if you have more rain, you’ll have wetter grain. If there are higher temperatures, you’ll have a better growing season. Sometimes the growing season is short; sometimes it’s long. Sometimes there are floods that affect that. Then, there is the market price. There are many factors that can affect. It might be, as you mentioned, 30% less this year. It might be 30% more next year.
I don’t know if it’s a fair comparison to hone in on that one variable and say, “Well, there’s a 30% benefit, so it must be okay.” There are certainly many variables in grain drying, as well as heating and cooling barns.
The Deputy Chair: You need to wrap up.
Senator Wells: Thank you, chair. I asked the chicken farmer — I’m sorry; I thought you asked me to wrap up.
The Deputy Chair: I asked you to stop.
Senator Wells: I’ll put my earpiece on.
The Deputy Chair: This is an immense feeling of power.
Senator Cotter: I’m not so interested in pursuing what farmers’ income and costs are this year compared to next year, or whether it’s wet or dry. The bottom line — in this legislation — is to try to moderate farmers’ expenses, or whatever the other numbers are. I think, Mr. Lobb, you’re right that farmers are price takers at both ends: expense takers and price takers. Arguing about the price of natural gas this year versus next year — with the greatest of respect — is not particularly relevant to the purpose of this bill, but I do have a couple of questions.
My first question is as follows: The bill, I think, was amended to propose that this would have a sunset after eight years. That’s inconsistent with your remarks that we need to help farmers because they produce food for us and the world. I am worried about whether you are committed to this coming to an end after eight years, in which case the incentive will be dropped.
My second question is this: Across the economy — we haven’t been perfect in the implementation of these carbon pricing strategies — the overall strategy has been to try to incentivize less use of carbon-intensive fuels, which, I think, was where Senator Woo was going. A kind of blanket for the next eight years doesn’t incentivize an overall societal effort. I would be interested if you could speak about those two points.
The third question is a minor one: In Saskatchewan, tax-exempt fuel for farmers is purple gas. I’m not quite sure how we’re going to have purple natural gas or purple propane in order to ensure appropriate enforceability. Can you speak to that as well? Thanks.
Mr. Lobb: The first thing you said is that you thought it was inconsistent that there is an eight-year sunset clause. The NDP and the Bloc Québécois asked for that sunset clause. In a way, we’re always talking about a spirit of parliamentary collegiality, and that’s what they asked to have put in there. The members of the House Standing Committee on Agriculture and Agri-Food and I thought that’s a perfectly parliamentary collegial thing to do in order to demonstrate the goodwill of the bill. I would put that down as the first one.
The second one is this: You’re kind of talking about a carrot for innovation and agriculture. Sir, you’re from Saskatchewan, and I’m from Ontario. If you go out to any country road, and talk to a gentleman who has been a farmer, or talk his wife — maybe they’re in their sixties or seventies — you can ask them to fire up their old tractor from the 1960s, and stand beside it. Then, ask them to fire up their brand new tractor that they have, and you’ll see the difference in emissions and in fuel efficiency. There is a big difference between what was produced 15 years ago and what’s produced today.
The other thing is technological innovation — GPS precision spraying, precision planting, precision fertilizer application and no-till drilling — in the last 30 years. I know committee members have done a soil study. The innovation in Ontario happened just down the road from my place. All of these have happened because farmers have a number of goals. One goal is to produce food, obviously; another goal is to be good to the environment and the farm they live on; and another goal is to improve their costs and improve efficiencies. These are all captured in that. Did that cover all three questions?
Senator Cotter: The other one was enforceability.
Mr. Lobb: Enforceability, to me, is probably the easiest thing because there is already a baseline for usage. You’re going to know how much propane or natural gas you’re using to heat your barn, and that’s going to be fairly standard. There’s going to be flexibility and fluctuations in the weather, but all of that is enforced. I think when you’re talking about purple gasoline — that we all remember from when we were teenagers, and maybe people filled up with their dad’s tank — I mean, that’s in your car. You don’t need purple natural gas or purple propane for your farm.
The Deputy Chair: Thank you very much.
Senator Burey: Thank you for your comments, everyone. It has been very interesting being a part of this innovative committee. I hear about money incentives, market signals and market forces. This question may be better for our next group of witnesses, but I wanted to ask about the Agricultural Clean Technology Program. What are the barriers to uptake, and what other incentives could be applied to farmers so that there would be uptake of more clean technology?
Senator Wells: As Mr. Lobb said, and I have said too, farmers are always trying to innovate. They’re trying to do things better, be more efficient, lower their costs and increase their productivity. If there are any programs they can avail themselves of — where it makes sense to do so — I can’t see them not doing it. Of course, to invest, you need to have the financial capability to do it. With exemptions for propane and natural gas — which is exactly what we’re talking about, and which means hundreds of thousands of dollars, or maybe millions of dollars, a year for individual farmers — those investments can be made. But you also have to balance that with the financing of the existing equipment that they have. I’ll compare it to a vehicle: If you lease a vehicle, and your plan is to have it for two or three years, and then something else comes along — or something else doesn’t come along, and there’s no viable alternative — you’re not going to get another vehicle while you still have this one under finance.
It’s a balance among productivity; efficiency; reducing costs; ensuring more money stays within your farm operation that you can reinvest; and the availability of alternatives. That’s why the sunset clause is set at eight years. In this case, we’re talking about when there is no reasonable alternative. I spoke earlier about the transportability of certain fuels. Propane is the key one. It’s stored in a tank, and you can have that tank on your farm in the rural areas of Canada. There are many questions, but it’s really going to this question: Are there other alternatives, and does this make financial sense? At the end of the day, even though farmers are good and are producing food, they also have to produce money that’s hopefully in the black and not in the red.
Mr. Lobb: Anyone is welcome to come to the Bruce County Federation of Agriculture meetings or the Huron County Federation of Agriculture meetings — my experience through the years has been that one minute after a program has been released, like the Environmental Farm Plan, it’s already fully subscribed. What you do is create a system almost like a lottery. Any farmer will tell you that, and it’s a frustration. The programs are fine, and they do make a difference. There are some Environmental Farm Plans; I’ve seen them. I made a list of different ones here, and it’s good; it’s fine. I don’t think it’s equitable because I don’t think the programs are accessible to all farmers — if you happen to hit the button before the next person, you win and they lose. That’s kind of been forever and always.
Senator Yussuff: Thank you, Senator Wells and Mr. Lobb, for your efforts here. To say that I’m not a farmer would be a stretch. I live in Toronto. I eat food, like many Canadians, and I recognize the challenge that we have in this country in the context of producing food, consuming food and keeping it at a reasonable price that people can afford.
I understand the gap between the current legislation — in the context of rebates — and what you’re attempting to do with your bill to bridge that for those who have been missed in that piece of legislation. But it would seem, to me, that the big argument — over time — is going to be how we help drive innovation in the context of heating barns, as well as drying corn and other crops where it’s required. I don’t have the answer to that, but, ultimately, that’s what will be required for us to try to address. How do we drive innovation, and how do we create the necessary equipment that will not rely on propane or natural gas to heat barns? We become polarized in these debates because we’re all concerned about climate change, and how we can reduce GHG emissions.
Is there a way to sensitize this debate as to how we can better assist farmers, recognizing that they have to innovate, and they want to innovate, but, at the same time, there is a challenge: GHG emissions — not just in farming, but throughout the country — are rising; they’re not going down. The statistics are very ominous in terms of the challenge we face.
Second, we need to keep food at a reasonable price. Farmer‑produced food goes to the retail sector, and then we get to do so. Could I ask you to speak to that? I know there are some challenges, but technology is changing in the marketplace very rapidly. What was not available three years ago is on the market today; what was not there 20 years ago is already on the market today, and people are using it, including farmers. Perhaps you could comment on that if you do have the knowledge, please. If you don’t, I accept that you don’t.
Mr. Lobb: The key thing is this: We have to recognize that agriculture is one of the most innovative industries there is. It’s absolutely one of the most innovative. If you have some of the grain drying businesses and innovators appear before committee, your jaw might hit the table because you’d be so amazed at what they’re actually doing. One of the thoughts that should not come out of this meeting is that agriculture is not innovating, or grain drying technology is not innovating. If you look at the heating of barns, it’s moving lockstep with the innovations that are heating a home, a commercial building or an industrial building — because it only makes financial sense.
Our point is — and you can even talk to Elizabeth May because her point was the same — as of today, or even as of tomorrow, this is the best and most efficient way to heat a barn and dry your crops. Eight years from now, or five years from now, it might be different. Agriculture will make the investment; the farmer will make the investment. And when their grain dryer or barn needs a replacement, and it makes economic sense to do so, they will do it, just like you do at home with your own furnace. Or if you’re doing a renovation, you renovate the area, and insulate the walls, the windows and everything else when you do it. It’s the same idea.
Senator Yussuff: The sunset clause in the bill has been timed out for eight years. Do you think that’s an appropriate time setting? I understand it was proposed by the opposition. The bill does not make any reference — should technology be available earlier — that Parliament should reconsider the sunset clause. The reality is that innovation and technology could change overnight, and, if the government were providing an incentive for farmers to access that technology, do we want to wait eight years rather than help them do that earlier to reduce their costs — but it will also mean consumers will get the savings if they’re able to pass that on at the end of the day.
Mr. Lobb: It’s a little theoretical because if it were an app on your phone, then I would say, yes, it would be in a year or two, or six months. But there are production lead times. As you well know, there are big lead times in all of this stuff. Maybe two years wouldn’t be reasonable, but maybe eight years could be reasonable for the time required for an idea to develop — for example, between the University of Guelph and a drying company — as well as the time required to get it production ready and the time required for it to be viable and tested to go on a farm.
Senator Yussuff: Thank you.
The Deputy Chair: We now have time for a very short second round. If I could ask you to keep your questions and answers to three minutes.
Senator Galvez: Thank you very much for this very interesting discussion. What I have heard about is the cost of helping farmers keep with business as usual, and that, in general, there is not much interest in helping farmers. The central thing is to help farmers adapt. But, at the same time, you both have mentioned how humidity can change, dryness can change and flooding and rain can change, and this is going to change very fast and very soon. Wouldn’t it be smarter to help them adapt, and get rid of their old ways — and help them adapt as fast as possible in order to be competitive, and to not be penalized by the profit?
Mr. Lobb: Madam Senator, all I can say to you is I would welcome you to come to Huron—Bruce at any time, and I will personally tour you around to meet many farmers, and you can ask them those very questions. To help them adapt to the humidity, I don’t think that’s realistic.
The takeaway from today’s meeting should be that there are dry falls and there are wet falls, and there are dry springs and there are wet springs — and those impact farmers. But the point we were both trying to make here is if it is a wet fall, you need to use more propane and natural gas to dry the grain. That’s just common sense.
But don’t think that farmers have some old version of Old MacDonald’s farm. That’s not today’s reality. If you go to any farmer and take a ride in their combine, which they would be happy to do — and I would arrange it for you — or you see the technology behind their precision planting or precision spraying, this is as technologically advanced as you’re going to find. They use all sorts of different technologies, and they even have self‑driving tractors. It’s very advanced and innovative. People might be surprised by how far advanced they are compared to other industries and sectors.
The Deputy Chair: Thank you very much.
Senator Dalphond: Speaking about the Ontario situation and grain drying, I understand that 50% of the grain is dried by a third party — not by the farmers themselves. What would be the result of this legislation? Half of the farmers won’t pay any more natural gas costs to dry their grain, but those using a third party would still pay the third party. How do you make it fair for all grain producers?
Mr. Lobb: I would say, first of all, that we’re amending a specific piece of legislation that doesn’t mention commercial grain drying. It talks about on-farm drying.
Senator Dalphond: Yes.
Mr. Lobb: That’s the first thing: There is an exact piece in the legislation that talks specifically about on-farm diesel and on-farm gasoline. That’s why we are amending that specific section in the bill.
Down the road, if there were an appetite amongst parliamentarians and senators to look at commercial drying, then, by all means, that would be an opportunity, but this bill talks specifically about this very thing.
Senator Dalphond: But isn’t that an incentive for farmers — who are using third parties — to drop their third parties, and buy their own drying facilities, or dryers?
Mr. Lobb: No, it’s not. You’re not going to change people’s purchasing behaviours or farming behaviours because, like I said, it’s very capital intensive to do it — to get into the on-farm drying and on-farm storage. Some people want to do it, and some people don’t do it. Like I said, it’s very time sensitive. You can’t keep your corn sitting in your bunker silo for three months, and then get to it in February. Basically, as it’s being harvested, it needs to be dried.
Senator Wells: There is also a point to be made with the businesses that dry only versus the on-site drying. The volumes and efficiencies are different. For a corn farmer, he has to sow, grow, harvest and dry. The companies that do the industrial drying — and only that — have greater volumes, so there are efficiencies built into that. That’s a fair way to put it as well.
The Deputy Chair: Thank you very much to our witnesses. Thank you very much to the senators for this very vibrant round of questions.
We will now proceed to our second panel on Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act. For the second panel, we welcome, from Agriculture and Agri-Food Canada, Warren Goodlet, Director General, Research and Analysis Directorate; and Marco Valicenti, Director General, Innovation Programs Directorate.
From the Department of Finance Canada, we welcome Phil King, Director General, Sales Tax Division; Jenna Robbins, Senior Director, Strategic Planning and Policy; and Adam Martin, Senior Advisor, Sales Tax Division.
Finally, from Environment and Climate Change Canada, we welcome Jeff Lindberg, Manager of Engagement and Assessment in the Carbon Markets Bureau.
We will hear opening remarks from Mr. Goodlet from Agriculture and Agri-Food Canada, followed by Mr. King from Finance Canada. All the other witnesses are available for your questions.
Mr. Goodlet and Mr. King, you will each have five minutes for your opening remarks. I will signal by raising one hand when you have one minute left, and I will raise both hands when your time is up.
The floor is now yours, Mr. Goodlet.
Warren Goodlet, Director General, Research and Analysis Directorate, Agriculture and Agri-Food Canada: Thank you, chair, for inviting us in relation to the committee’s study of Bill C-234. I would like to begin today by acknowledging that I am speaking to you from the traditional and unceded territory of the Algonquin Anishinaabe people here in Ottawa. As mentioned, I’m joined today by my colleague Marco Valicenti, the Director General from our department’s Programs Branch.
As senators are aware, climate change is one of the greatest challenges of our time, and we only have to look at the devastating wildfires, droughts and floods across Canada to know that Canadian farmers and ranchers are on the front lines of the fight against climate change. But even as Canadian farmers continue to witness the devastating impacts of climate change, they are also playing a significant role as part of the climate solution. Canadian farmers are already taking action on the environment through practices such as zero tillage, precision agriculture and crop rotation. As well, natural prairie grasslands store a vast amount of carbon while providing feed for grazing livestock.
Over the past two decades, Canadian farmers have made great improvements in their environmental performance and efficiency. Canadian farmers have managed to virtually double the value of their production with only a slight increase in their total GHG emissions. While this progress is significant, the Government of Canada and agricultural producers recognize that there is more work to do.
Carbon pricing — as we’re discussing here — is widely recognized by economists as the most efficient way to reduce emissions while also driving innovation in the economy. However, the Government of Canada recognizes that agricultural producers are important drivers of the economy, which is why the federal carbon pollution pricing system has been designed to provide targeted relief to limit its impact and reflect the unique challenges faced by the agricultural sector. As you know, under the federal carbon pricing system, non-energy-related emissions from livestock and crop production are not priced. Furthermore, the use of gasoline and diesel on farms is exempt from the federal fuel charge, and commercial greenhouse operators can obtain 80% of the relief from the fuel charge on natural gas and propane.
A portion of the proceeds from the fuel sources that are not exempt from the fuel charge are returned directly to farming businesses in backstop jurisdictions through a refundable tax credit, which my colleagues from the Department of Finance will be pleased to speak to.
[Translation]
The government is making sure that farmers have the tools they need to increase production sustainably in order to feed a growing Canadian and global population.
Agriculture and Agri-Food Canada is actively working on many fronts to help the farming sector grow its businesses while reducing emissions, through scientific research and by directly supporting farmers across the country with various programs and strategic initiatives.
The government has committed $1.5 billion in new funding to help farmers reduce their carbon emissions through sustainable practices and technologies.
[English]
In particular, I would highlight the tripling of federal investments in the Agricultural Clean Technology Program, while also expanding the Agricultural Climate Solutions On-Farm Climate Action Fund. Agriculture and Agri-Food Canada set aside $50 million under the Adoption Stream of the Agricultural Clean Technology Program with a specific focus on grain drying technologies. As well, $10 million was allocated to projects focused on powering farms with clean energy and moving off diesel.
Already the Agricultural Clean Technology Program has supported 252 projects announced across Canada with a total investment of over $98 million, including for precision agriculture technologies, technologies to measure soil carbon and energy-efficient grain dryers. To date, Agriculture and Agri‑Food Canada has announced funding for 99 grain dryers with total funding of up to $37 million.
The government is also developing the Sustainable Agriculture Strategy as a means to support the agricultural sector’s actions on climate change and other environmental priorities toward 2030 and 2050. Involving extensive consultation with our industry stakeholders, the Sustainable Agriculture Strategy is a coordinated federal approach to establish a long-term vision and a strategic approach to agri-environmental issues, including climate adaptation and resilience and climate change mitigation, as well as water, biodiversity and soil health. It will build on past and current successes, recognizing actions already taken by producers to meet environmental objectives while growing production and supporting Canada’s role as a global food provider.
Canadian farmers are willing and ready to support national climate change objectives, and these investments complement economy-wide initiatives, such as the price on pollution to help achieve net-zero emissions by 2050.
With the ongoing crisis in Ukraine, rising prices at the grocery store at home and abroad and the escalating effects of climate change, the world is looking to Canada now more than ever to support sustainable global food security.
Along with other leading agricultural producers, Canada remains committed to helping our farmers meet the world’s need for food while safeguarding resources for future generations.
Thank you for your time, and I look forward to any questions.
Phil King, Director General, Sales Tax Division, Department of Finance Canada: Thank you for the opportunity to appear today concerning the private member’s bill, Bill C-234, which seeks to remove the fuel charge on the use by farmers of natural gas and propane for heating and drying activities.
The Greenhouse Gas Pollution Pricing Act, or the GGPPA, currently provides upfront relief from the fuel charge to farmers for gasoline and diesel used in eligible farming machinery, such as farm trucks or tractors.
The GGPPA also provides upfront relief of 80% of the fuel charge for natural gas and propane used to heat eligible greenhouses.
Bill C-234 would expand fuel charge relief to farmers by modifying the definition of “eligible farming machinery” to include grain dryers and property used to heat or cool a building or similar structure used for raising or housing livestock or for growing crops. It also seeks to expand relief by adding natural gas and propane to the current list of qualifying farming fuels.
It is worth noting that while Bill C-234 is being studied, Bill C-8 received Royal Assent on June 9, 2022. Recognizing that many farmers use natural gas and propane in their operations, Bill C-8 introduced a refundable tax credit in order to return a portion of fuel charge proceeds to farm businesses operating in backstop jurisdictions, starting with the 2021-22 fuel charge year.
Through the refundable tax credit, the total amount intended to be returned is generally equal to the estimated fuel charge proceeds from the on-farm use of propane and natural gas in heating and drying activities in backstop provinces. This aims to ensure that aggregate proceeds collected from this farming activity are returned to farmers.
The refundable tax credit is designed to allocate total fuel charge proceeds according to farm size, as measured using total farm expenditures. As such, there is no link between actual propane or natural gas usage on a farm and the amount of credit received. In this manner, the credit aims to help farmers transition to lower-carbon ways of farming by providing support, while also maintaining the price signal on propane and natural gas to reduce emissions.
This is a different approach than that proposed in Bill C-234. This bill would directly relieve fuel charges in relation to natural gas and propane used in eligible farming activities, and thus would completely remove the price signal intended by the carbon pricing regime. Thank you.
The Deputy Chair: Thank you very much, Mr. Goodlet and Mr. King. We will now proceed to questions from our senators.
Senator Oh: Thank you, witnesses, for being here. Do you see an implemented carbon tax rebate for producers in backstop jurisdictions? Where else do you see Bill C-234 implementing an exemption from the carbon tax?
Furthermore, the concept of revenue neutrality with the Bill C-8 rebate is on an aggregate basis, which means it is not connected to actual carbon tax expenditures, and does not pay back to its farmers what they pay in carbon taxes.
Would you not agree that an exemption is a more accurate way to ensure that farmers — who do not have alternative energy options — do not carry the burden of the carbon tax?
Mr. King: I could speak to that briefly. That is a consideration, yes. It goes directly back, but the flip side of that is it completely removes the price signal. That’s one consideration the government had to take into account as well. On that aspect of it, you’re correct.
Senator Oh: I understand that diesel and gasoline are currently exempted from the carbon tax for on-farm use. Why were natural gas and propane not included in the original carve‑out?
Mr. King: I can respond to that, too. Thank you. When the federal carbon pricing system was designed, it was designed based on the British Columbia carbon tax that was already in place at the time — and the B.C. carbon tax did not provide relief for grain drying or heating activities. That was mirrored in the federal carbon pricing system. I don’t know if there’s anything else beyond that. My colleague Mr. Martin was in the division at the genesis of the regime. I don’t know if there’s anything further on that.
Adam Martin, Senior Advisor, Sales Tax Division, Department of Finance Canada: I think you touched on it, Mr. King. At the end of the day, the government’s objective is to apply pricing as broadly as possible as the starting point and then as a chosen targeted relief. As Mr. King mentioned, that targeted relief for farmers was gasoline and diesel used in eligible farming machinery.
Senator Loffreda: Thank you to our witnesses for being here. I would like you to further elaborate on the double payment that could occur through Bill C-234 and Bill C-8. During previous testimony, an official from Finance Canada stated a double payment could result from Bill C-234 being passed, in addition to the rebates that have already been passed through Bill C-8. Could you clarify and elaborate on the statement? How do Bill C-234 and Bill C-8 compare with respect to carbon pricing for farmers? Why have farmers said that the rebates do not cover the costs?
Jenna Robbins, Senior Director, Strategic Planning and Policy, Department of Finance Canada: The way in which double compensation could happen is if you have a payment rate set for the credit, which is based on proceeds that are intended to be returned to farmers — that would result in a credit being paid out or claimed by farmers on their tax return. If you have an exemption in place, there are no proceeds being collected, so they’re exempted from paying the fuel charge. At the same time, they’re receiving an amount in respect of proceeds that are not actually collected.
At the moment, for the current 2023-24 fuel charge year, there is not a payment rate set. That could be set at any time. There would not be double counting at this current time should Bill C-234 pass.
Senator Loffreda: So there are no issues with the double payment?
Ms. Robbins: At the moment, yes.
Senator Loffreda: Can you explain why the farmers said that the rebates do not cover the costs?
Ms. Robbins: That goes back to what Mr. King said in his opening remarks. It’s just a different approach from an exemption. Certainly, if you have an exemption, or you are trying to mirror an exemption — where you are trying to replicate exactly what is paid in the fuel charge on natural gas and propane consumption — then the farmer would get back what they paid in the fuel charge.
The tax credit works differently. It’s intended to preserve the price signal, so it returns proceeds on an aggregate. It takes the aggregate proceeds and returns them in an agnostic way to farms based on the size of the business. It’s not dependent upon what you, as a farmer, might actually pay in the fuel charge on natural gas and propane use.
Senator Loffreda: Thank you.
Senator Woo: Thanks, witnesses. Mr. Goodlet, the central argument of the proponents of this bill is that farmers are pretty much at the technological frontier when it comes to the heating of crops and barns and so on. What is Agriculture and Agri-Food Canada’s assessment of where farmers — in aggregate — actually are in terms of the technological frontier with respect to more efficient heating technologies?
Mr. Goodlet: I think there’s certainly a recognition that farmers have incentives to innovate and try to adopt new technologies. Different farms are at different points in that journey. Newer technologies are more efficient. The department has a program in place to try to encourage the adoption of some of those and develop new ones.
I don’t know, Mr. Valicenti, if you want to speak to that.
Marco Valicenti, Director General, Innovation Programs Directorate, Agriculture and Agri-Food Canada: Thank you very much for the question.
In the context of the Agricultural Clean Technology Program, it’s a five-year program. In 2021, the government did provide a decision in the context of a carve-out: $50 million for more efficient grain drying technologies, as well as $10 million to help producers switch fuels on-farm. We’ve seen significant demand for the program.
In 2022, the government decided to triple the money for the program, so we had two intakes. During the first intake, as my colleague mentioned, we have approved approximately 100 grain drying applications. I would say that most of them are newer technologies — using biomass as an example. In some cases, they were upgrades and brought 20% to 40% more efficiency on the farm. We’ve seen a mix.
There is a second stream to the program where we look at research and technology. We are helping some companies find better technologies into the future, including heating in barns and other locals on the farm.
Senator Woo: To the extent that uptake of these programs has been very strong, it would suggest to me that farmers are still climbing the technological curve in seeking to improve efficiency.
What role does the pricing of natural gas and propane play in incentivizing these farmers to sign up for such programs as you have described?
Mr. Valicenti: I would say it does. Again, the intent is where they are in the context of their efficiency needs on the farm. We’ve seen a significant uptake in programming. It’s been quite remarkable.
As I said, we’re looking at it from the perspective of adoption — looking at those new equipment purchases, and they are significant purchases — and also on the research and development, or R&D, side. We are seeing companies come in that want to look at new technologies for grain drying, as well as other types of energy efficiency to be found on the farm. We’re seeing both sides. It’s pretty significant work that is being done.
Senator Woo: If I could ask Finance Canada a question on the non-refundable tax credit: You’ve said that the refunds — going back to the farming sector — in aggregate, more or less, compensate for the costs that are used in natural gas and propane. Writ large, there’s equitability. The problem applies to particular farms that may use more because, for whatever reason, they feel unjustly done by.
Is it possible to tweak the program such that the refunds don’t go to farms that would never have used natural gas or propane in the first place, thus taking away some of the sense of inequity that farmers feel because they are forced to use natural gas and propane?
Ms. Robbins: Thank you for the question; it’s a good one.
To clarify one point, it’s a refundable tax credit. You receive the full amount back irrespective of your tax owing.
In regard to your question, being delivered through the tax system, there is a question as to how closely you might actually be able to target a particular population. The tax system is intended to have a broader application. It’s not a spending program per se.
The other point to make is this: As you try to move further toward what is the actual natural gas and propane consumption, or fuel charge on that consumption, you’re starting to mirror an exemption at some point. I would say that, at that point, an exemption may have advantages over using the income tax system. Perhaps it’s serving a different objective. There are some limitations as to how closely you can target the correct population.
Senator Dalphond: When I read the bill that implemented the fuel surcharge, which is called the carbon tax — even if it is not a tax, according to the Supreme Court — the fact is that the government has the power by regulations to enlarge the list of exempted sources of energy.
It was said to us, therefore, that if we want to have natural gas and propane as exempted fuels, we could. It wasn’t done. It was said to us during the previous panel that it was an oversight; it should have been included in the bill at the time.
Do I understand that it’s not an oversight but a policy decision to make sure that the government doesn’t want to extend the exemptions to natural gas and propane?
Mr. King: Thank you. It’s fair to say it was not an oversight. There was deliberate consideration of where the fuel charge would apply, and to what it would apply. The government made the decision when it put the policy in place to exempt diesel and gasoline used for machines in farming activities, but not heating and drying activities — again, it’s because of the B.C. example and precedent, and also to try to ensure some coverage, or maximal coverage.
This is the bigger picture: There’s very little of the emissions from the farming sector that is actually priced. The one area where they are is heating and drying, yet that funding is still returned to farmers — not dollar for dollar, obviously. To your specific point, I think it was a very deliberate policy choice. I don’t believe it was an oversight.
Senator Dalphond: My second question is about innovation; I guess many colleagues asked the previous panel. We all wish and believe that farmers want to be creative, and that they believe in sustainable agriculture and will do whatever is needed to go forward. They need some incentives, as we’re told.
Unfortunately, it seems that the programs are running out. Each time a program is offered, there are so many applicants. You referred to 100 for grain drying, so that means 100 farmers received subsidies. How many grain dryers are there in Canada? I’m not talking about third parties, but farmers who use their own units on their farms.
Mr. Valicenti: I don’t have an exact number, senator.
I will say that in the second intake, and we’re assessing projects right now, it was part of the tripling of dollars that the government announced in Budget 2022. We anticipate, as part of that batch, that there will be significantly more grain dryer applicants who will be successful through the program.
In the second intake, we decided to have a closed intake so we could maximize and look at those who would have the highest GHG reductions.
The first intake was continuous. When the money ran out, we stopped the program. In the second one, we gave everyone a three-week window to provide their applications. We are now assessing on the highest level of GHGs. There will be grain dryers on that list, as well as biomass heating systems for barns, energy efficiency and precision agriculture. We talked about GPS, et cetera. We’re looking at a wide range of clean technologies, including, of course, grain dryers.
Senator Dalphond: Will some applicants be refused?
Mr. Valicenti: We anticipate that there will be applicants who will not be able to receive funding through the second round as well.
Senator Dalphond: Thank you.
The Deputy Chair: I am going to take the chair’s prerogative to ask a couple of questions, if I may.
Mr. King, you mentioned this program is based on the British Columbia model, and that British Columbia did not have exemptions for grain drying or for greenhouse heating and such.
I find it curious; British Columbia has quite a different climate than the rest of Canada. It has very little grain production, relatively speaking. It has the most temperate climate in the country, so its buildings would require less heating and cooling.
Is it logical to use British Columbia’s example as a model for the rest of the country, given that agriculture is quite different on the Prairies or in Ontario than it is there?
Mr. King: Thank you, Madam Chair. It’s a good question.
It’s important to remember that, at the outset of the carbon pricing system — in fact, today — it’s not the federal system that is being imposed necessarily.
Each province and territory has the ability to impose its own carbon pricing system as long as it meets the national benchmark. That might differ from province to province based on individual circumstances. It’s just worked out that the federal benchmark seems to have become almost the default system that’s in place across most of the country, except in B.C. and Quebec. I don’t think it was necessarily intentional for that to happen, but the option is still there for any given province or territory to impose its own system, which could take that factor into account.
The Deputy Chair: That was going to be my next question. In Alberta, for example, the Notley government had their own carbon tax, so this wouldn’t have applied to Alberta farmers then, but it does now.
Mr. King: That’s correct.
The Deputy Chair: That’s interesting to note. I want to follow up on Senator Woo’s question about the refundable tax credit because there does seem to be an anomaly. To use an Alberta example — because I am from Alberta — if you are a large-scale rancher, but you use little natural gas or propane because your cows are out on the range, yet you have a large operation, you would receive a significant tax refund. However, if you’re running a smaller operation — for example, a greenhouse in Lacombe — and your natural gas is high because you’re heating a greenhouse, you would not receive a commensurate amount back if your operation is smaller than that of the large cattle rancher. That doesn’t seem logical to me.
Ms. Robbins: That’s a good question and a fair point to make. The expense is a good metric for measuring size. You are getting something back in relation to your size, but you may not have any natural gas or propane use and be receiving a credit back in respect of the proceeds.
The Deputy Chair: My concern is that if I get a price signal as a consumer, I might get a more fuel-efficient car — indeed, when this car is done, I am getting a more fuel-efficient car. As a consumer, I might get a price signal that says “use less natural gas” — indeed, I’m planning to buy an induction stove. If I’m a farmer, however, my capacity to change my practice is much less elastic. Believe me, I support carbon taxes. However, a system that works really well to send a consumer a signal may not be as functional to send a farmer a signal because he or she has less capacity to make individualized spending decisions due to the capital-intensive nature of their work.
How do we create a system that sends farmers a price signal telling them they need to change their practices — and I think most farmers realize that because they are on the tip of the spear when it comes to experiencing the impacts of climate change — and that recognizes it’s much harder to turn that type of large farming operation around than it is for me to make individualized decisions as a small-scale consumer?
Mr. King: I can attempt to answer that, Madam Chair. I don’t think we have any doubt that any farmer running a business tries to minimize their costs. They do everything they can to minimize their costs. It’s probably evident that — given the uptake of some of the programs that my colleague from Agriculture and Agri-Food Canada has talked about — there is room for approaching the frontier. However, we’re not quite there yet across Canada.
I don’t think we can underestimate or understate the value of incentives. It is a good thing to have an incentive to encourage the development and then the adoption of technology. Absent the price signal, I think it was clear that would be slower. You will recall that the price signal for the carbon price started at $10 per tonne in 2018, and it will slowly work up to $170 per tonne. It’s not a one-time introduction of a price. It’s slow and steady, but it’s rising. I think it’s important to have an incentive to drive innovation. If you take that away, you will have less innovation and adoption.
The credit method has some limitations that have been discussed, but, at the same time, that funding globally — in aggregate — is going back to farmers; it’s not necessarily on a farm-by-farm basis, yet it is still going back. I don’t know if I can answer your question about a better system, but this is the particular one the government has chosen to go ahead with.
Senator Burey: Thank you so much for coming here today. I want to hone in on the Agricultural Clean Technology Program. We’ve heard that farmers want to improve their efficiencies and, by doing so, obtain more innovation, clean technology and those sorts of things. But we’ve also heard that it’s difficult to access these programs.
We’ve talked here of incentives, so what percentage of the applications are being approved?
Mr. Valicenti: Thank you very much for the question. I don’t have the number of applications here. We can circle back with that, but there was a reason — in 2022 — the government added additional dollars to the fund for the program because we saw oversubscription in the first year. We anticipate that we will be funding more applications in the second intake. We feel that by using a closed system for the intake, we will look across the country at those with the highest potential for GHG reductions in the areas I mentioned: energy efficiency and greener technologies.
We are going to see an increase in the number of applications approved in the second intake, but I just don’t have the number — which we have — regarding the intake for the second round. I can certainly circle back, and provide that number to the clerk.
Senator Burey: Yes. Thank you very much.
Senator Woo: I want to pick up on the tax credit, and whether we could think about a better way of doing it. I know that the more carve-outs you have in the tax system, the less efficient it becomes. Do you have data at the CRA to sort out the farms that only do drying of grain and heating of barns so that only they are eligible? Is that technically feasible?
Ms. Robbins: We’re at Finance Canada, so I can’t speak to the ins and outs of the CRA data. I do not think it would be possible to get that level of refinement, but, certainly, I’m taking note of your comment.
Senator Woo: I’m sorry about that. For Environment and Climate Change Canada, have you done an estimate of the net increase in emissions that might result if this amendment were to pass?
Jeff Lindberg, Manager, Engagement and Assessment, Carbon Markets Bureau, Environment and Climate Change Canada: Thanks for the question. We know that we’re talking about 2 to 3 megatonnes of covered emissions that would no longer be covered. It depends on whether the jurisdictions that have their own systems choose to also exempt — for example, if B.C. were to further exempt. That’s the number of covered emissions.
We don’t have a number just for the sector in terms of what we think the reductions are only for carbon pricing because the different measures in the climate plan and the measures from the provinces and territories all interact. When we model estimates of reductions from climate action in the 2030 Emissions Reduction Plan, we tend to do it on a global basis, and not on a single-measure basis or on a single-measure, single-sector basis. These are economic models that are hard to make granular, so we don’t have that estimate.
Senator Woo: From a behavioural perspective, is it your expectation that the exemption of these fuels in these sectors would lead to an increase in emissions over the baseline of having these exemptions? Is that part of the behavioural variable in your model?
Mr. Lindberg: Yes, in the sense that economics and massive experience with markets tell us that without this incentive, all things being equal, less action will be taken to reduce the use of these fuels. What’s hard to say — and this relates to the points made by others today — is how big a change that is simply because it may be that some farmers wouldn’t take immediate action anyway if they’ve just invested in a grain dryer or what have you. All things being equal, without carbon pricing, we definitely see higher emissions globally in the economy.
Senator Woo: We know that many farmers are not yet on the technological frontier because there is a huge uptake of the programs that help them reach the frontier. If this is correct — that the incentive takes away the desire to upgrade — will we end up with more emissions than we would otherwise have?
Mr. Lindberg: I would say that’s likely, and I just can’t speak to the specifics, but that’s the general point.
Senator Dalphond: I have short questions: My first one is about greenhouses. There was a reference made earlier to greenhouses. Isn’t there a special regime for greenhouses, where they get about 80% of relief? Can you explain? I’m not an expert in taxation, but I think there is a special status for greenhouses.
Mr. King: There is a partial exemption — but it’s quite large — for greenhouses under the GGPPA. They get an 80% exemption on the fuel charge for their use of propane and natural gas simply because it’s such a massive input to production in greenhouses. Again, this was modelled based on the B.C. carbon tax that was in place before the federal carbon price.
Senator Dalphond: Thank you. My second question is to follow up on questions that were asked, especially by Senator Woo. I’ve met with many groups, and they are very frustrated. Senator Simons referred to the cattle producers who don’t use gas, or use very little.
Isn’t that the way — since you don’t have the information on how many farms — they will have to claim the tax credit, by showing that their energy consumption represents 5% or 10% of their operating costs? They have to show you their operating costs, and they receive a tax rebate based on the overall operating costs; that is my understanding. Would it be possible to fix that so it targets those who are, let’s say, energy intensive? Even if they use electricity, they will receive the rebate because they’re using electricity, instead of propane, for example, or natural gas.
Ms. Robbins: Thank you for the question. These are good comments that you all are making. There are trade-offs here —
Senator Dalphond: [Technical difficulties] — the department next week. He is an economist; I’m not.
Ms. Robbins: There are trade-offs to consider. There are certainly pros and cons to the existing credit method. As Mr. King said, the advantage is that it preserves the price signal. It’s also simple in its application as well as in its administration for the CRA. The role of the CRA is to administer the tax system. Income is the metric that matters for that purpose. The more refined you try to make these programs, the more difficult it is to run them through the tax system. That’s one point to make.
The second point to make is that the minister has to prescribe a payment rate in advance for the credit to operate. They need to know the specifics of these circumstances in advance. That can’t necessarily happen for us to estimate the payment rate that should apply. The advantage here is that we’re preserving the price signal, and we have a level of simplicity, but you’re right; that comes at the cost of poorer targeting, perhaps.
Senator Burey: This question is directed toward Environment and Climate Change Canada. I’m a pediatrician. I’ve worked through the pandemic, and we had to take our science table to task for modelling. I am not going to let you off the hook when saying you have assumptions; you can put different models in place. On something this big — with a program that’s so important to climate change — we should have some models. I encourage your department to look at modelling. Will the emissions go up if we pass this bill? You can put different variables in a model, just like when we see a hurricane and we predict where it’s going to go.
For example, we can see predictable uptake based on new technologies. We just heard that the programs are oversubscribed. People really want to take them, but they, oftentimes, don’t have enough funds or financing for the uptake. We know there is already a huge signal for behavioural change — and I’m a behavioural pediatrician; I’m just adding that in there.
On top of that, we also know that technologies are improving. We’ve heard that people are already wanting to buy these things. I really think that we could get some modelling in terms of the impact of this bill on emissions. Perhaps this is just a statement and not a question.
Mr. Lindberg: It’s a fair point. I certainly can take it back to the group that leads our modelling. It’s a bit of a departure from our whole-economy modelling approach, but I will take that back and, if possible, respond to the committee.
Senator Dalphond: One of the reasons that some farmers use natural gas and propane for their operations is that they cannot connect to the grid. They say they’re in remote areas, and far from the grid, or that the grid is not providing sufficient electrical output to operate a dryer, for example, which requires more than my television set.
Is there a program to help these farmers get connected without paying too much? I was given one example of a $100,000 cost to connect to the grid. Another person said it was even more than that because the province is not offering to connect for free. I won’t name the province, but it is the province that is not showing great interest in some new technologies. Are there ways to assist these farmers?
Mr. Valicenti: As part of the Agricultural Clean Technology Program, we have three pillars, or three areas of focus. One is green energy and energy efficiency. Under that pillar, we talk a lot about grain dryers, but certainly we have seen a significant number of applications come through for solar or geothermal. The cost of connecting part of that would be included if the application were successful. We do have some dollars available in that stream of the Agricultural Clean Technology Program.
Senator Dalphond: Thank you.
Senator Woo: One of the central arguments of the proponents of this bill is that there is a lot of price volatility in the agricultural sector, and the carbon price is an added price to their costs. They are price takers — both on the supply side and on the demand side — and, therefore, it makes life more difficult for them. But price volatility in agriculture has been there from time immemorial. It’s part of being in the farming business, right? In some ways, even if you get rid of the GHG pricing on natural gas and propane, you could have a situation where prices collapse, and they would still be in great trouble.
My question is for Agriculture and Agri-Food Canada. Tell us a bit about the ways in which we can help farmers, in general, deal with price volatility, setting aside carbon pricing. In a sense, carbon pricing is predictable; we know what the increases are going to be. But, next year, there could be an increase in fuel prices — never mind the carbon price — that goes through the roof. How do we help them in these kinds of situations?
Mr. Valicenti: Thank you very much for the question, senator. I focus mostly on the innovation and environmental program, but there is another directorate within our Programs Branch that focuses on what we describe as the Business Risk Management Suite. As part of that suite, we could be thinking about crop insurance, such as AgriInsurance or AgriStability, which is a program that helps producers — based on their five‑year average and level of revenue — to perhaps stabilize over the years if there were a drop in income due to price fluctuations and, in one case, crop insurance. We do have an opportunity under AgriInvest where there is an opportunity for producers to put money into a fund that can help them in years where their income may decline because of commodity prices, weather, et cetera. We do have a number of different programs under this Business Risk Management Suite that supports producers during tougher times.
Senator Woo: Just to get a sense of materiality, can you give us an estimate of natural gas prices or propane prices as a share of the total expenses on relevant farms?
Mr. Goodlet: Doing so, specific to natural gas and propane, might be more of a challenge, but I can say that operating expenses in 2022 for all farms were around $73 billion and all fuel was $2.5 billion. By “all fuel,” that includes diesel and gasoline.
Senator Woo: Is natural gas a subset of that?
Mr. Goodlet: That is a subset of that. Again, in terms of usage — in terms of GHGs, at least — natural gas and propane are about 20%, I think, of the fuel GHGs.
I don’t know how that exactly translates to expenses, but you’re looking in the realm of all fuel expenses being about 3.5% of total expenses.
Senator Woo: And you said natural gas was a subset of that. So it’s well under 3% of total operating expenses.
Mr. Goodlet: I think that’s a safe statement.
Senator Woo: Thank you.
Senator Dalphond: Am I right to believe that when the system was initially designed based on B.C., you exempted fuel and gasoline because that would be used in the combines, tractors and mobile things — but not to heat the farm, or to roast the chickens? It was to be used for smaller pieces of equipment and not for heating purposes — is that right?
Mr. King: I think that’s exactly correct. That was the specific policy intent at the outset of the system.
Senator Dalphond: And now we’re extending the definition of agricultural machinery beyond the scope of what it was.
Mr. King: That’s correct. This bill — Bill C-234 — would extend the definition of the machinery, as well as the fuels used in order to include propane and natural gas.
Senator Dalphond: Thank you.
The Deputy Chair: I would like to thank all of our witnesses — Warren Goodlet, Marco Valicenti, Phil King, Jenna Robbins, Adam Martin and Jeff Lindberg — for being with us today, and for providing such thoughtful answers. I want to thank all the committee members today for their thoughtful, insightful and active questioning. Everyone’s assistance is greatly appreciated in helping us understand this bill.
[Translation]
Our next meeting is scheduled for Tuesday, September 26 at 6:30 p.m. We will continue to hear witnesses on Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act.
[English]
Thank you to the interpreters, the Debates team transcribing this meeting, the committee room attendant, the multimedia services technician, the broadcasting team, the recording centre, ISD and our pages.
(The committee adjourned.)