THE STANDING SENATE COMMITTEE ON AGRICULTURE AND FORESTRY
EVIDENCE
OTTAWA, Tuesday, September 26, 2023
The Standing Senate Committee on Agriculture and Forestry met with videoconference this day at 6:30 p.m. [ET] to examine Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act.
Senator Robert Black (Chair) in the chair.
[English]
The Chair: Honourable senators, everyone, it’s good to see you here. I begin by welcoming members of the committee and also our witnesses, in person and online, and those watching the meeting this evening. My name is Rob Black, chair of the committee and a senator from Ontario. I’d like to start by asking senators around the table to introduce themselves.
Senator Simons: Senator Paula Simons, Alberta, Treaty 6 territory.
Senator Klyne: Marty Klyne, senator from Saskatchewan, Treaty 4 territory.
Senator Woo: Good evening. Yuen Pau Woo from British Columbia.
Senator MacAdam: Jane MacAdam, Prince Edward Island.
Senator Oh: Senator Oh from Ontario.
The Chair: It’s good to have some senators here who are representing others; thanks for being here. Thanks to our support folks, the team behind us, who have gone to great lengths to make sure we were able to connect with our online witnesses.
Today, the committee is meeting on Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act. Our witnesses for panel number one are, from the Agriculture Carbon Alliance, co-chairs Dave Carey and Scott Ross; and from the Ontario Agri Business Association, Mr. Russell Hurst, Executive Director.
Unfortunately, we are not able to hear from Mr. Orb from the Saskatchewan Association of Rural Municipalities, but he will join us on another day.
From the Grain Growers of Canada, we have Kyle Larkin, Executive Director, and Andre Harpe, Chair, by video conference.
We will hear opening remarks from Mr. Carey, Mr. Ross, Mr. Hurst and Mr. Larkin. You’ll each have five minutes. I’ll signal at one minute left with my hand raised. When we get to about 30 seconds, both hands are going up, and that’s time to think about wrapping up.
I understand Mr. Carey and Mr. Ross will be splitting their five minutes.
Dave Carey, Co-Chair, Agriculture Carbon Alliance: Thank you for the invitation to appear today on Bill C-234. With me is Scott Ross, my co-chair. The Agriculture Carbon Alliance, or ACA, is the first-of-its-kind coalition of 5 national farm organizations established to ensure that Canada’s farmers have a constructive voice in informing Canada’s agri‑environmental policies to maintain competitiveness, support farmers’ livelihoods and leverage farmers’ critical role as stewards of the land. Our membership encompasses major commodities, including everything from seed and grains to pork and sheep, to cattle, fruit and vegetables, forage, dairy and poultry. Collectively, ACA represents more than 190,000 farm businesses that directly contribute $32 billion to Canada’s GDP.
Bill C-234 is a key policy priority for our members. To remain competitive and environmentally sustainable, farmers increasingly need to invest capital into their innovations that drive efficiencies, reduce fuel use and implement best management practices which lead to fewer emissions, a better environmental footprint and that allow them to continue doing what they do best — provide food for Canadians and the world.
Currently, farmers pay a carbon price for utilizing natural gas and propane for on-farm practices that are central to food production. These practices include grain drying, heating and cooling of livestock barns and greenhouses, feed preparation, steam flaking and irrigation.
Carbon pricing was implemented as a mechanism to change behaviour. However, with no viable alternatives, pricing these activities does not incite behavioural changes away from the use of natural gas and propane. Instead, it adds significant financial burden on producers who don’t have other viable options.
Bill C-234 would ensure farmers maintain capital at a time of significant inflation, enabling them to make on-farm investments that drive energy efficiencies and reduce their environmental footprint. Investments in these technologies can cost hundreds of thousands of dollars, and when no alternatives exist, carbon surcharges pull capital away from investments that would augment the sector’s potential to further reduce emissions.
ACA members are not philosophically opposed to a price on pollution. We are, however, opposed to burdening Canadian farmers with punitive costs as they undertake practices that are essential to producing food, feed and fibre. When the Greenhouse Gas Pollution Pricing Act was introduced, it exempted gasoline and diesel used on farm. We believe that natural gas and propane used on farm should be treated the same.
Scott Ross, Co-Chair, Agriculture Carbon Alliance: Exemptions are, simply put, the best option. A June 2021 Parliamentary Budget Officer report on the government’s environmental plan estimated that increasing the carbon tax by an additional $120 per tonne — from $50 per tonne to $170 per tonne — by 2030 would lower the sector’s emissions by less than one megatonne of carbon dioxide, or an emissions reduction of around 1%. This would cost farmers $1 billion, resulting in less investment and innovation and potentially exacerbating food security in the process.
Unfortunately, the rebates for farmers implemented through Bill C-8 failed to account for the factors — largely beyond farmers’ control — that drive significant variability in the use of propane and natural gas. In reality, the aggregate approach means that many farmers received only a fraction back of what they paid in carbon tax in rebates. That means less money to reinvest on the farm. Rebates are also retrospective and time‑delayed, discouraging prompt investments.
Bill C-234 would provide a comprehensive but targeted exemption for essential activities that lack viable alternatives. It would leave the money in farmers’ pockets to make timely investments in their operations. It should not be forgotten that farmers are innovative climate solution providers, sequestering millions of tonnes of carbon, protecting biodiversity and grasslands and utilizing the latest technologies — where commercially viable — to reduce fuel and water use.
Over the past 20 years, without carbon pricing, agricultural production doubled while total emissions from the sector have been relatively stable, resulting in a 50% decrease in GHG emission intensity from 1997 to 2017.
Farmers, growers and ranchers are stewards of their lands, adopting the best environmental practices whenever possible to continue to invest in innovations. They need to remain competitive and have access to sufficient capital. By adopting policies that support these outcomes, they will be able to further their investments in the sustainability of their operations, furthering emissions reductions and sequestering carbon while feeding Canadians and the world.
Canada’s farmers, growers and ranchers are strong supporters of Bill C-234, and we look forward to any questions you might have. Thank you.
The Chair: Thank you very much.
Russell Hurst, Executive Director, Ontario Agri Business Association: Good evening, Mr. Chair and members of the committee. Thank you for providing us the opportunity to comment on the committee’s study of Bill C-234.
The Ontario Agri Business Association, or OABA, is an industry group that represents companies ranging from single owner operators to large multinationals who operate country and terminal grain elevators, livestock, feed mills and crop input facilities at approximately 500 locations throughout the province of Ontario.
In terms of our sector’s economic impact, on an annual basis, our members generate in excess of $19 billion in sales and employ over 30,000 full-time and part-time staff.
OABA and its members are very supportive of the concept of financial relief to Canadian primary producers who otherwise currently have no viable, large-scale energy alternatives and are incurring federal carbon taxes into their costs of production, both grain drying and heating livestock housing.
The cost of grain drying, either on farm or at any one of our over 300 commercial grain elevators in Ontario, is an essential part of the harvest process to ensure that the grains can be used for food, feed and biofuels. OABA recommends that, as part of the Senate committee’s study, you examine the potential for inclusion of farmers’ drying expenses incurred at commercial elevators.
The majority of farm operations in Ontario do not have their own on-farm grain-drying capacity. This is vastly different from Western Canadian production systems where most farm operations have on-farm grain-drying capacity. The specific percentages within Ontario vary regionally, but, in aggregate, approximately two thirds of the volume of corn grown in the province is dried at commercial grain elevators operated by OABA members.
As Bill C-234 is currently structured, it has the unintended result of creating a significant cost-of-production imbalance among Ontario farmers due to the proposed exemption being exclusive to those farm operations that have on-farm drying capacity and no carbon tax relief for those farmers that make the business decision to dry their grain at one of the 357 commercial elevators located throughout the province. If no amendments are made, approximately one third of the grain-drying expenses incurred in Ontario will be carbon tax-exempt with the remaining two thirds not exempt.
On-farm grain-drying can be a very capital-intensive process with new grain dryers ranging in cost from several hundred thousand to several million dollars for high-efficiency, high‑throughput operations. The majority of Ontario farm operations choose to allocate capital to other aspects of their farm businesses and use commercial grain elevators to provide timely and, in most cases, more energy and cost-efficient grain-drying services to the crops grown.
Estimates based on Grain Farmers of Ontario’s published analysis show that the carbon tax exemption at current rates would result in approximately $18.20 per acre cost of production disparity for corn grown this current year. This would also rise to $47.60 per acre by 2030 when the carbon tax is set at $170.
Stated another way, Ontario farmers harvested 2.2 million acres of corn in 2022. Two thirds of that total production is estimated to be dried at commercial elevators. At current carbon tax rates, Ontario farmers who choose to use commercial grain‑drying services would not be eligible for over $27 billion in carbon tax relief at the current rate and over $70 million by 2030 if harvested acres remain unchanged.
We recommend the committee examine the potential to further amend the bill in an effort to ensure that Ontario farmers benefit from the proposed bill equally. Additionally, we have the following considerations: When grain is dried at a commercial elevator in Ontario, it is still owned by the farmer who produced it. The commercial elevator operator provides the farmer an invoice for the propane or natural gas used to dry their grain to an agreed-upon moisture level prior to it being placed into storage or utilized by an end user. The administrative process is very similar to what the petroleum sector has already successfully implemented where registered farm businesses provide their chosen fuel supplier a federal carbon tax exemption documentation for fuel consumed.
Ultimately, as a sector, we need to strive for government policy that does not result in financial winners and losers within the marketplace for undertaking a necessary grain management process where there are currently no realistic large-scale alternatives. I implore you to really understand the market imbalance this bill could create and look to study the potential for further amendments.
Thank you, Mr. Chair. I look forward to any comments or questions the committee may have.
The Chair: Thank you, Mr. Hurst.
Kyle Larkin, Executive Director, Grain Growers of Canada: Thank you, chair. Thank you to the members of the committee for inviting the Grain Growers of Canada, also known as GGC.
As the national voice for Canada’s grain farmers, GGC represents over 65,000 producers through our 14 national, provincial and regional grower groups. Our members are trade‑oriented, sustainable and innovative. As a farmer-driven association for the grains industry, GGC advocates for federal policy that supports the competitiveness and profitability of grain growers across Canada.
With our colleagues at the Agriculture Carbon Alliance, we are asking for your full support of Bill C-234. Simply put, this legislation is essential to supporting the profitability and viability of grain farms across Canada, as well as their ability to provide food for Canadians and the world.
Canadian farmers are already some of the most sustainable in the world. The government’s climate plan entitled A Healthy Environment and a Healthy Economy, released in December of 2020, writes that:
Canadian farmers, ranchers and agri-food businesses are constantly innovating to improve their practices so that they are more sustainable, making greater use of inputs, developing bio-based products and increasing their energy efficiency. . . . In 2018, Canadian agriculture generated 50% fewer greenhouse gas emissions for every dollar of GDP that it generated, compared with 1997.
Grain farmers are natural stewards of their land. Through the widespread adoption of conservation tilling, producers have been able to significantly reduce the use of fuel and sequester hundreds of megatons of carbon over the past decades. Unfortunately, the Greenhouse Gas Pollution Pricing Act, also known as the carbon tax, does not acknowledge these environmental contributions and has been financially punishing hard-working farmers for years. In fact, the Parliamentary Budget Officer estimates that it will cost farmers nearly $1 billion over the next eight years.
To create Canada’s sought-after grain, such as canola, wheat and corn, grain drying is an essential process that thousands of farmers must do every year. Grain drying is necessary to reach the required moisture level to create Canada’s top-grade grain that Canadians and the world rely on and to avoid spoilage and food waste. Unfortunately, the only method of drying one’s grain is through a grain dryer that operates on either propane or natural gas. For grain farmers, that can be in the tens of thousands of acres in size, and this is the only technology currently available on the market.
Let me be clear: There are no viable alternative solutions currently available or even rumoured to be available in the near future.
It has been suggested by some that dry aeration or in-bin and suction cooling may be a viable alternative. There are two main issues with this suggestion. First, these technologies cannot be used on a large scale. For example, they can dry several hundred bushels a day while large-scale grain dryers can dry 500 to several thousand bushels per hour. Secondly, this technology remains unreliable and leaves grain prone to spoilage. For example, corn regularly requires the removal of 10 points of moisture whereas the technology suggested may dry the corn a point or two before it spoils.
In conclusion, farmers are already at the forefront of supporting Canada’s ambitious climate change goals. However, they should not be financially punished for creating the grain that Canadians and the world rely on nor should we risk food security by putting into question the viability of grain farming. Seeing that no viable alternative currently exists for grain drying, we ask for your full support in passing Bill C-234 in earnest.
Thank you for your time. I would be happy to take any questions.
The Chair: Thank you very much, Mr. Larkin. Thank you to all of our witnesses tonight.
We will proceed with questions from senators. Before asking and answering questions, I would like to ask members and witnesses in the room to please refrain from leaning in too close to the microphone or remove your earpiece when doing so. This will avoid any sound feedback that might result and affect our folks behind us.
As it was with our previous practice, I would like to remind each senator that you have five minutes for your question or questions, and that includes the answers as well. We can move to round two and three and so on.
We will start with our deputy chair, Senator Simons.
Senator Simons: Mr. Hurst, I’m from Alberta, so I’m not as familiar with the grain-drying model that you describe in Ontario. I note that this bill was drafted by an Ontario member of provincial Parliament, yet he chose not to include the big commercial grain dryers I presume because the model is to give the farmer the exemption and not a large business that is in the business of grain drying. The farmers are not paying the tax to have their grain dried at a central grain dryer, the company is.
Explain to me the logic of this. Presumably, other businesses might also seek an exemption, and it’s my understanding that the bill was meant to narrowly give the exemption to the farmers themselves.
Mr. Hurst: Thank you for your question. As a point of clarity, the commercial grain elevators in the province of Ontario pass the cost of the natural gas and propane, including the carbon tax, directly to the producer. So in practical terms, when that producer sees an invoice for the grain-drying charges, they will see an invoice that includes however many metres of natural gas or propane are used plus a carbon tax.
Ultimately, for the grain elevator sector, the carbon tax is entirely a flow-through. Really what we’re advocating for in this process is that any producer that utilizes the services of a commercial grain elevator, in the bill’s current form, they would not be able to achieve the exemption.
Ultimately, what we are looking to bring forward is that any grower in Ontario that utilizes commercial grain dryers in the bill’s current form wouldn’t be exempt and they would ultimately incur that cost because the grain elevators push that cost through as part of the service fee.
Senator Simons: I guess one could argue that any business pushes the cost of the carbon tax through to its customers, though, could one not?
Mr. Hurst: I think that’s a fair assessment.
Senator Simons: All right. I had a question for Mr. Larkin.
One of the concerns that has been raised about the way that Canadians sometimes dry their product is the use of glyphosate, which is a desiccant but which also people have raised serious concerns about being a carcinogen.
Do you think there’s a danger of Canadian farmers leaning more in that direction if they can’t competitively dry their grain themselves?
Mr. Larkin: From my knowledge, I haven’t heard any of those concerns from grain farmers that I’ve spoken to across Canada.
The main concern I have heard from folks is really just the added cost to drying grain. They have been used to a system for years and a lot have spent a significant amount of capital on a natural gas or propane grain dryer, and now they are being penalized over the past few years for having made that investment.
Senator Simons: All right. I suppose what one might argue is that if farmers got a market signal that said they need to find other technology in which to invest, they might invest in more efficient and effective grain dryers or more efficient and effective ways of drying grain. I understand what you are saying that there is no alternate technology right now, but sometimes people need an economic signal that says to them that we must change our practices. I know that farmers are as concerned about climate change as anybody because they are on the bleeding edge of climate change. Do you think that a price signal might encourage people to invest in more energy-efficient technology?
Mr. Larkin: I totally agree with you, senator. The goal of the act is obviously to add price to fossil fuels in order for Canadians to change their practices. You look at the consumer market, you have Canadians buying electric vehicles more today than they were 10 years ago. Part of that is driven by the carbon tax on gas.
The unfortunate part for farmers, though, is there is no viable alternative. All that exists currently on a large scale for farms in Saskatchewan or Alberta — you could be in the 5,000, 10,000 to 15,000 acres — when you harvest and need to dry any type of grain, you need to do it as soon as possible or you risk spoilage. If there were a viable alternative on the market, I don’t know if I would be here today. There isn’t one.
The other thing is there is an eight-year sunset clause in this act, which I think is speaking to technologies that we may see in the future. We don’t know what we’ll see in two, three or four years from now, but today there is no viable alternative on the market.
When I speak to companies that produce grain dryers, there is nothing coming online. If we look at electrification too, we may be getting into a bigger issue there with provinces still producing energy from coal or natural gas, et cetera. There is a Catch-22 as well, even if there were alternatives on the market.
The Chair: Thank you.
Senator Oh: Thank you for your presentation. In testimony from government officials last week, we learned that the Greenhouse Gas Pollution Pricing Act was modelled after the British Columbia carbon tax. To my knowledge, this was the first time this information was made public.
The question is since B.C.’s grain industry is minuscule compared to grain production on the Prairies, and since their climate is typically more moderate than the Prairies, does this explain why B.C. did not exempt propane and natural gas in carbon tax legislation?
Mr. Carey: Thank you for the question, senator. I can’t speculate as to why the B.C. government or the federal government chose to do that, but you are right. In terms of what you consider grain and oilseed production, British Columbia is a relatively smaller player. They are large in agriculture production absolutely when it comes to livestock and poultry. I can’t necessarily tell you why B.C. would have chosen to do that, but I can say that the way that the carbon tax was brought out or the Greenhouse Gas Pollution Pricing Act does not currently work for the Prairies where the bulk of Canadian agriculture is produced. Mr. Ross, anything supplemental?
Mr. Ross: No, not at this time.
Senator Oh: Someone else?
Mr. Larkin: I would just add there, senator, the B.C. Grains Council is a member of ours and just like Mr. Carey said, if you look at Peace River country in northern British Columbia, there is a lot of grain produced there.
I can’t speak as to why the British Columbia government wouldn’t have exempted natural gas or propane, but now that carbon pricing has been extended across Canada, it has become a big issue for grain farmers. The majority of grain farmers are in Alberta, Saskatchewan and Manitoba. They are the ones producing the bulk of canola, wheat, barley, pulses and all the grain that we rely on and the world relies on. That’s why it’s a wider issue because it’s affecting a wider scope of farmers across Canada.
Senator Oh: Thank you.
Senator Klyne: Welcome to our guests. I have a question for Mr. Hurst and then a couple questions for ACA.
Mr. Hurst, this past May the then Minister of Agriculture and Agri-Food announced federal support for 45 new projects related to adopting more efficient grain-drying technology by farmers across Canada with an investment of more than $22.2 million through the Agricultural Clean Technology Program — Adoption Stream.
The program has supported 99 grain-drying projects across Canada. In your opinion, is this program effective at encouraging the establishing of on-farm drying capacity? What suggestions would you have for improvements in the program perhaps in the form of research, guidance or support for structuring investments that could make it more accessible and responsive to farmers’ needs?
Mr. Hurst: Thank you for the question, senator. I would give two answers to your question. The first one is it’s a good start. The reality is 100-odd small-scale grain elevator dryers on the scale of Canadian agriculture is a drop in the ocean type of thing. I think it’s an interesting signal for the sector to further invest.
But the second aspect I would look at is really from our perspective, this is a systems approach. We can look at it all the way from plant genetics — breeding crops that have better dry‑down capacity so therefore doesn’t utilize as much natural gas, propane or energy — all the way through to new investments in energy efficiency. From our standpoint, a typical life span of a commercial grain elevator dryer is going to be about 20 to 25 years. You make that investment and use that investment until it’s no longer viable, and then you reinvest in new technology.
The one thing that we’re starting to see is a lot of that investment currently at the business or industry level is further efficiency with the same fuel source. We’re talking about natural gas and propane. I think an aspirational target is looking at the alternative fuel sources, but the reality is these are generational technologies. This isn’t stuff you can achieve in a year or two. These are decade-long investments that ultimately need to sink as businesses — whether you are talking commercial entities or farm businesses — when that useful lifecycle of the current equipment transitions out, you make those.
It’s a good start, but ultimately the focus needs to be wider and broader, and it’s a drop in the bucket, honestly, at the scale of Canadian agriculture.
Senator Klyne: Have you had the opportunity to share those recommendations at the federal level?
Mr. Hurst: We have as part of consultations in the past year. The reality is, from our standpoint, we’re a regional trade association for the business side, and a lot of those programs are very farmer-focused. And I have two colleagues here that are probably better to speak on the focus on it.
Ultimately, at the commercial level, our members are going to make business capital investments regardless of whether there is government policy signals. That’s just good business sense. At the grower level, a lot of those programs have been more targeted towards the growers.
Senator Klyne: A question for the gentleman from the ACA. When testifying at the agriculture committee in the other place, representatives from ACA told the committee that they supported Bill C-234 because it would allow producers to make investments in better and environmentally-friendly technologies such as grain dryers, precision agriculture technologies, anaerobic digesters and solar panels, all of which can be very costly.
Can you elaborate on why you believe that a tax exemption is more effective at encouraging adoption of new and clean technologies than a pollution pricing signal coupled with rebates, which is the federal government’s current approach?
Mr. Ross: I can start on that front. There are a couple of angles that are relevant to that question, senator. First and foremost, the points that Mr. Hurst made about the scale of investment required to use cost-shared programs is significant and demonstrates the need for a systemic approach.
In terms of the price signal, I think what’s most important to recognize is that fuel efficiency is an ever-present driver of change on farms. It’s a reality. It’s one of the largest expense lines on farms. We’ve seen significant increases over the past few years. What I would suggest is that the price signal is actually already quite strong to farmers to reduce their fuel use through whatever technology is available to them.
The challenges we see with the rebate approach are fundamentally that the aggregate approach that it adopts does not reflect the realities on farm that many experience. The rationale for why someone may be paying a larger carbon surcharge than another is often predicated on the infrastructure they have available to them, the region they’re in, the climate they’re experiencing and what they’re producing. It is not really a reflection of decisions to use more fuel. These are essential activities that are inherent to the nature of production where they operate.
Senator Woo: I will pick up on Senator Klyne’s question on the tax rebate and whether that’s a better way of dealing with the problem you are identifying.
First of all, a clarification question. Are commercial dryers eligible for the tax rebate or is it just the farmers?
Mr. Hurst: It would just be for the farmers because ultimately the farmers incur the expense. The commercial elevators just pass that expense to the farmer.
Senator Woo: The criticism of the tax rebate is that it’s untargeted. There is a reason for it because of the price signal and they scale it according to the size of the farm and so on.
Would you be supportive of a tweak to this program whereby there is greater targeting but maintaining the price signal — in other words, keeping the carbon price but identifying farms that, in fact, grow crops that need drying, for example, or have chickens that need to be kept warm and so on? How would you respond to a tweak to the greenhouse gas pricing program that includes that kind of more targeted, refundable tax credit program?
Mr. Carey: At this point, we have not seen any description of a program that would have any sensitivity as far as being actuarially sound to redistribute properly. We heard from Finance Canada in the House of Commons that it’s an aggregate‑based approach and that there is very little sensitivity involved in it.
The other concern is around the capital intensity of agriculture and primary farming. The money needs to be in their pockets now, not 18 months from now, and not through a process where they are not sure what they are going to get back. The price signals are there to diversify away from and be as efficient as possible. However, we believe — and the Parliamentary Budget Officer and others have confirmed — that the exemption of targeted uses on farm is the best solution.
Mr. Ross: I would reiterate the point that Mr. Carey just made. It’s difficult to comment on a proposal that we haven’t actually seen. Inherently, I think the notion of directing a rebate to those that are using more carbon is contradictory to the point about the price signal that that would intend. Our fundamental understanding from working with farmers is that the price signal, as Mr. Carey said, is already very strong. There is absolutely no question that any farmer will take whatever actions are available to them to reduce that cost line because it is so significant on farm.
Senator Woo: My second question, if I may, goes to your initial point — a very good one — that you want farmers to have as much of their retained earnings as possible to invest in the things they need to invest in, which basically is a way of saying you want to reduce the volatility and uncertainty in the cost structure and the natural gas price increase that uncertainty — well, it’s not uncertainty. It’s a predicted price, but it creates more cost.
I would like to hear from you about the relative importance of natural gas and propane in the volatility of farm income. My understanding from officials is that the share of natural gas and propane in the operating expenses of the relevant farms we’re talking about is very small. The figure we heard is well under 3%.
My sense is that you are going to face a lot more volatility in just the price of grain, for example, or a whole bunch of other things that you are very familiar with and expert at managing through risk management programs.
How material is it going to be for us, for the government and for Canada to take away pollution prices on natural gas when it constitutes such a small share of your cost? I could parenthetically add that it would seem to me that natural gas prices have been declining sharply over the last decade as well, so that today the share of natural gas in total farm expenses is even smaller than it was, I’m guessing, 10 years ago.
Mr. Carey: I haven’t seen the 3% figure. I would certainly be interested in seeing that via the clerk.
There are areas where natural gas is used, but propane is also used. In some areas, natural gas is not available. I would be surprised if it’s that low across Prairie-based agriculture given the importance that our members have placed on this, including in a package that we sent out via the clerk. We have testimony from farmers who are testifying about the amount of money they are paying.
I believe that natural gas and propane are significant costs on farm. Those costs certainly increase whether you have access to natural gas or propane, if you have a direct line in or if you are trucking it in.
One thing that sometimes gets lost is that this is not a total exemption for farmers. As soon as the price of carbon goes up, the costs of trucking, rail, fertilizer, seed and inputs all increase significantly. We’re here to talk about natural gas and propane, but I believe it is a large line item for most farmers.
Mr. Hurst: One of the important points is that using averages in the context of Canadian agriculture is quite challenging. It’s a very diverse industry. Even previous reports by the Parliamentary Budget Officer have noted that the carbon surcharges on farm are quite lumpy. They’re very variable and it’s highly individualized.
This also speaks to the challenges with the aggregate approach through the rebate. A one-size-fits-all assessment of what’s happening on farm in Canada tends to miss a lot of the important variability and diversity that exists across our country in agriculture where we’re talking about over 190,000 different businesses.
Senator Osler: I’m Senator Gigi Osler from Manitoba.
I’ll direct my question to Mr. Larkin, but afterwards it can be open to any others who would like to contribute.
Mr. Larkin, your testimony just now echoed what the Agriculture Committee in the other place heard in 2022, namely, that currently alternatives to fossil fuel grain-drying methods are commercially available but require a large initial investment. On another date, they heard that no scalable or viable alternatives to natural gas and propane exist for heating and cooling barns.
My question relates to the alternative methods. Bill C-234 includes an eight-year sunset clause. In your opinion, is eight years enough of an incentive? Is it long enough that easily available, scalable and viable alternatives to natural gas and propane grain-drying methods will be available?
Mr. Larkin: It’s a great question, senator. You asked me about the future, which is obviously hard to tell. I think if we were to go back even four years ago and look at the marketplace of electric vehicles, for example, or even ground-source heat pumps, both technologies are having widespread adoption right now because they are viable alternates to the current fossil fuel versions. Unfortunately, on the grain-drying side of things, currently there is no viable alternative. However, we’re not sure what we’ll see in two, three or four years. We’re not sure what we’ll see in six, seven or eight years.
I would say that eight years is probably the magic number in terms of the research and development required for companies to create viable alternatives. It’s certainly something that grain‑drying companies will be interested in, especially as we get closer to 2030, closer to 2050 and closer to our net-zero and climate change goals.
The last piece I would say is that technologies such as dry aeration or other technologies that some have suggested are just not viable alternatives. If you look at those technologies, they can maybe dry 500 bushels a day. Farmers need much more capacity than that, especially those in the Prairies where if you have a natural gas or propane dryer, you can dry 500 bushels an hour. We’re talking a 24-times difference in technologies. When I say there are no viable alternatives, that’s exactly what I’m speaking to.
Senator Osler: Thanks.
Mr. Carey: Sustainability is a continuum, and farmers want to continue to innovate. I think the eight-year sunset clause sends a signal to farmers that we understand the financial pressures you are under and that you want to make capital investments on farm, while also sending a signal to companies that serve farmers that we need to innovate. We need more energy-efficient grain dryers, and we need better ways of doing things.
Also, the reality is that it’s not just technology-based, it’s also infrastructure. Depending on where you are in the country, you don’t have access to phase three electrification. Even in Ontario we don’t yet have phase three electrification to reach the British thermal units sufficient for grain dryers. However, the technology in the space is rampant, and we are very optimistic looking forward that there will be viable alternatives.
From the testimony in the other place that was referred to from the Agri-Food Innovation Council, they estimate it will be about 10 years before that innovation will come online, and that was 2021 or 2022 testimony. Eight years from Royal Assent likely lands in the sweet spot between not eroding a price signal and recognizing sustainability is a continuum, but also incentivizing the clean tech companies to invest because I don’t think it’s viable down the road for the government to continue to fund some of these projects. We want private sector. We want good‑paying jobs and greener technology, but they are not available now, and the other concern is that even if they were available now, the backlog will probably be three to five years. Not every farmer on my board of directors has a grain dryer, but the ones who want a new combine are waiting two to three years for their equipment because of supply and demand challenges.
It takes into account all of that. There is no silver bullet here, but we do want to move, as much as we can, to a greener future for Canadian agriculture. Farmers really do feel the effects of climate change more so than most Canadians, I would suggest.
Senator Pate: Thank you very much, and my apologies for being late as you were presenting.
I was going to ask the question that Senator Osler asked, and I’m curious as to what other viable alternatives are being examined. That’s one question.
However, particularly for Mr. Ross and Mr. Carey — because you represent all farmers — what’s the impact of this bill on the farm, whether it’s agriculture farmers, dairy farmers or pork farmers? How is this impacting things like greenhouses and barns? You can tell I’m not a farmer, but what will the impact be? Are we just delaying the inevitable by saying, “Let’s wait for eight years” or “Let’s wait for a decade” or that we know that change has to happen?
Mr. Ross: I can speak to the latter part of your question. There are so many different diverse applications the way the carbon surcharge affects farms across Canada, but it’s important to note there were many examples provided in testimony or in briefs to the standing committee in the House of Commons on this point that flagged the significant carbon surcharges these farms — let’s say a turkey farm in Ontario — are facing despite having made significant investments in efficiencies already. One of the important points that came through in much of that testimony is that farmers are not sitting back and waiting to invest in efficiencies. They are doing so today. But the reality is they are still facing carbon surcharges in excess of tens of thousands of dollars, and that number will only increase up to 2030.
In the context of livestock agriculture, there are a number of applications that this bill would relate to, primarily heating and cooling of livestock barns. One of the important points, as Mr. Carey referenced, is farmers are living climate change every day, and part of that is more volatility in weather. So their costs are rising due to the very issues we’re talking about today and they are having to manage that in real time while investing in the future.
When we look at other applications of this, such as steam flaking for feed, that’s a feed preparation technique that’s absolutely essential for cattle from an efficiency standpoint to make sure they are able to feed the cattle that feed Canadians and the world. What’s important in all of these areas is farmers are not sitting back and waiting. They are investing in whatever available technologies there are today, but at the same time are watching their carbon surcharge expand in a place where they have no viable alternative to pursue. The perception and the reality for a lot of these operations is there isn’t a price signal to change behaviour. They are doing what is available and they are working with the technology that exists and investing in it.
The importance of this bill is that it leaves more capital in farmers’ hands to make those investments in real time to deal with the efficiencies that are available to them whereas in the absence of that working capital is being taken away from farmers without providing a signal that meaningfully provides new opportunities for efficiencies for them.
Mr. Carey: I fully agree with my colleague. I don’t know if any of you have family members who are small business owners. My father-in-law is one of them. They are continuously reinvesting in their business. They often don’t draw salaries because they are reinvesting in their business. They are thinking of succession plans, who will take over the farm. Farmers are not idle. They are continually making investments.
We believe that Bill C-234 will free up the capital so they will continue to invest on the farm.
The one beauty of agriculture, primary farmers and primary production is that when they drive efficiencies that help their bottom line, it also helps the environment because they don’t want to be using natural gas, propane, gasoline, diesel or fertilizer unless they have to because those are all significant red lines on the budget. So farmers continue to invest, but if you want to make these big capital cost investments — whether it’s wind, solar or anaerobic digesters — we are talking hundreds of thousands of dollars they simply do not have in their pockets. A rebate that might give them $875 back when they spent $10,000, $15,000 or $20,000 in carbon pricing on natural gas and propane, we are never going to square that circle.
The key is that farmers aren’t idle and they will continue to invest, but they need the capital to do so otherwise we will not see efficiencies. Efficiencies lead to environmental improvements as well, senator.
Senator Dalphond: My first question is for Mr. Hurst. You said the bill will create an imbalance between producers in Ontario. Two thirds of the producers will not benefit from that. How will that translate into practice? Less money. You explained to Senator Simons that the third-party dryer will charge for the services provided to the grain producer, which I understand from your testimony remains the owner of the grain at all times. I guess he pays a service to be stored and dried, but it remains his property. You said that will create a major disparity. Can you elaborate on that? Are you saying that some producers will be put in a position where they will be unable to compete with the other group?
Mr. Hurst: Thank you for your question, senator. There are two aspects there, so I’ll tackle the latter first.
The cost of production imbalance that we’re projecting is the carbon tax that a producer incurs for drying whether that’s propane or natural gas. If it’s provided by a third party — for example, a commercial grain elevator — in the bill’s current form, that would not be exempt. So ultimately, for those particular growers, their current cost of production would be their future cost of production. Those growers that utilize on‑farm grain drying, which in Ontario is a minority of the actual grain and oilseed producers, would have a lower cost of production on an annual basis because a portion of their grain drying expenses would be exempt.
The difficulty we have is that results in sector competitive imbalance, and ultimately, the ask of this Senate group is to fully consider that.
Senator Dalphond: Are you in a position to give me some numbers? What will be the imbalance? Is it 10%, 5%, 30%?
Mr. Hurst: A typical grain drying in any one particular farm in terms of their total cost of production more often runs 8% to 12% of the total cost of growing a corn crop, if you will. In real dollars, and this is based on Grain Farmers of Ontario analysis, it works out to approximately $18 per acre for corn in current carbon tax pricing, which is $65 a tonne. When we get out to 2030, we’re into $47 an acre. If you have farmer A on one side of the road and farmer B on the other doing the exact same thing and one has a higher cost of production of $47, that’s very troublesome from a sector standpoint when you have policy that creates winners and losers in the marketplace.
Senator Dalphond: The number of about 8% to 10%, that would be the cost for drying?
Mr. Hurst: Yes.
Senator Dalphond: If you are drying yourself, it would be 7%? What would be the difference between the 8% and 10% paid by those using third-party dryers and those who would be drying themselves, a part of the overall costs of the operation, growing and having the combine in the field and everything else?
Mr. Hurst: I completely understand what you are asking. It’s difficult on a farm-by-farm basis because the costs of production are somewhat different.
This isn’t absolute, but typically you will have on-farm drying that is generally not as efficient as large-scale commercial drying. They are newer units; they are high throughput. That is not exclusively, though. There are some very sophisticated farm operations that have the exact same drying equipment that you would find at a commercial elevator.
On the scale of the bell curve of early adopters versus laggards, there is also some really old technology still being used that isn’t as efficient. Ultimately, it would be very close. We’re talking a per cent in terms of total cost of production difference from a grower doing on-farm versus commercial. It’s quite minor.
Senator Dalphond: One per cent. Following the logic of what you are saying, shouldn’t we grant the tax exemptions to the third-party dryers — because they are more efficient — rather than to the farmers on their property because they are less efficient and, as you say, are using the old equipment and everything else?
Mr. Hurst: I will reclarify that. I would ensure that those producers who utilize commercial grain drying to dry their crops have the opportunity to be carbon tax exempt for the propane and natural gas the same way a grower would on farm. That makes it equal across the board. In this case, from a commercial standpoint, the grain elevators have no financial gain or loss. It’s a cost flow-through for them.
Senator Dalphond: Flow-through. Thank you.
The Chair: I have a question, and then we’ll move on to round two.
We have heard from commercial grain dyers, greenhouse operators and mushroom growers that it should be tweaked and supporting them more. I need to ask first Mr. Larkin and then the three here very quickly: Is it worth amending this bill and risk the bill not going through?
Mr. Larkin: You have hit the nail on the head, senator. My quick answer would be no. We have been waiting for years for this legislation and similar legislation to pass either in the Senate or in the House. We have the opportunity to pass this now. I would suggest passing this piece of legislation as is and in the future looking towards commercial drying opportunities.
Mr. Hurst: I think that’s a very difficult question for all of you. I guess I would challenge you. You aspire to have appropriate legislation that meets the needs of all Canadians and, in this case, all farmers. Ultimately, where we’re landing is that we have identified that there is a market imbalance in the province of Ontario for the majority of grain and oilseed producers, and I would challenge all of you to think this through. Ultimately, we strive for the best legislation we can — not the fastest legislation.
Mr. Carey: No amendments are required. This Bill C-234 builds off the good work of retired senator Diane Griffin’s Bill S-215. They’re almost identical bills, and this bill should pass without amendments.
Mr. Ross: I would say the same. I think what is critical in this bill is that it is building on a very targeted exemption that already exists in the act — focused on farm. That is the scope of what we are talking about today, which is, I would suggest, tidying up an omission in the original exemption that is needed. That, to my mind, is a very critical improvement in the legislation that we should be looking at moving forward with immediately.
The Chair: We will now move on to round two. We’re going to take an extra five minutes on this panel, so we really have about ten minutes or less. We have three senators right now who wish to ask questions. We’ll limit it to about three and a half minutes.
Senator Simons: On Thursday, we heard from government officials who were explaining — which I had not understood before — the aggregate way in which the carbon rebate works so that it’s based on your expenses and not on how much natural gas, propane or electricity you are using. It seems to me to be backwards to a certain extent because you could have a large cattle operation in Alberta and not use that much power — because your cattle are out on the range — versus having a smaller business that is really carbon intensive. It just seems to me that the way we are doing the rebates is counterintuitive.
Mr. Ross and Mr. Carey, what would you say to that?
Mr. Ross: That was very much our assessment as well. It’s a very blunt instrument that doesn’t really reflect the intent of what we believe is a critical tool in ensuring that farmers have capital to invest in operations.
The other facet to it that is so critical is that it’s not simply the size and nature of your business, it’s where you are located. The region and climate you’re experiencing have an immense impact on many of these practices as does — the point that was raised earlier — access to infrastructure. That can be a fundamental driver of the extent to which you are exposed to carbon surcharges, and it is beyond your control.
Senator Klyne: Assuming Bill C-234 goes through, and in the interest of farm operations becoming far less reliant upon fossil fuels, what suggestions would you have for the government to build on Bill C-234 and concurrently accelerate access to new technology and equipment, research and support for structure, investments and reinventing processes region by region? What have you got for me?
Mr. Ross: Thank you for the question, senator. We are in the midst of working on something called the Sustainable Agriculture Strategy in Canada right now. I would suggest that what is evident in our conversations to date — and as I think has been apparent to many farmers for some time — is that investing in basic and “commercializable” research and development is fundamental for our sector. Significantly increasing the level of investment in research and development and also simultaneously extension services to ensure that the research is being translated to on-farm applications is fundamental.
Similarly, it’s important to take a very flexible and regionalized approach to incentives to ensure that when farmers are making decisions, they are making them as business people. They don’t look at sustainability in isolation. We look at where we can take targeted approaches that ensure the signal from a business perspective is aligned with the right decision sustainability-wise. There is no one tool. There’s no silver bullet. It’s about taking a close look — a flexible approach — that accommodates the diversity in our industry across the country and ensuring there is a tool kit for farmers able to really align those incentives.
Senator Klyne: How far along is that strategy?
Mr. Ross: It’s in development today, but it’s setting a course for the sector until 2050.
Senator Klyne: Do you have a theoretical overview of that?
Mr. Ross: This is a Government of Canada initiative that we are advising upon, so it is not —
Senator Klyne: We might get something faster from you. Can you send the committee a little brief note on that? I can’t write as fast as you are talking.
Mr. Ross: We can certainly give you a brief of some of the critical elements that I just spoke to. That would certainly not be a problem.
Senator Klyne: Maybe we can get behind it.
Mr. Carey: In some ways, senator, we just need to get out of our own way. We need to make sure we are incentivizing competition and innovation here in Canada, and that requires things like regulatory modernization and reducing red tape. Canada is a relatively small market globally when it comes to agriculture compared to Brazil, the EU or China. We need companies to want to invest here. They need a clear path for commercialization whether it’s the next commercially efficient grain dryer or the new wave of gene-edited technologies that have come on the market.
Canada needs to be an attractive market to foster that innovation, and that is also in collaboration with Agriculture and Agri-Food Canada who do a lot of great upstream research that really builds the building blocks that companies then come in and commercialize. But innovation and competitiveness will be key, and that takes all of us.
Senator Woo: In the same way that you may be able to share some information with us on the sustainability plan, maybe you could also take a closer look at the earlier question about the share of natural gas and/or propane in the relevant farms covered by this bill. To me, that’s a very germane question because it goes to the issue of whether or not the risks farms face, which impede the ability to reinvest in the things they want to do, stem principally from natural gas and propane. The other fuels are already exempt, so we can leave them out.
You had asked about a figure, which I quoted, and it’s much lower than I had guessed, in fact. This is from an Agriculture and Agri-Food Canada report in 2019, I believe, that suggests that grain drying as a share of net operating costs for an average farm — and I take the point of differences in farm size — is between 0.05% and 0.38%. To me, that’s a very small number. I stand to be corrected. If you have other figures, I would love to see them.
The Chair: We will want this as soon as possible.
That is the end of our questions. I want to thank our witnesses, Mr. Hurst, Mr. Carey, Mr. Ross and Mr. Larkin, for joining us this evening. We do appreciate your witness testimony today.
We will now proceed with our second panel on Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act. For our second panel, we welcome in person from the Climate Action Network Canada, Alex Cool-Fergus, National Policy Manager; online from the David Suzuki Foundation, Tom Green, Senior Climate Policy Adviser; and online from the University of British Columbia, Kathryn Harrison, Professor, Political Science.
We will hear opening remarks from Ms. Cool-Fergus, Mr. Green and Dr. Harrison. You each have five minutes. As before, I’ll raise my hand when you have one minute left. When it is time to wrap up, you will see both of my hands and it is time to wrap up. With that, Ms. Cool-Fergus.
[Translation]
Alex Cool-Fergus, National Policy Manager, Climate Action Network Canada: On behalf of Climate Action Network Canada and our over 150 members across the country, thank you for the opportunity to speak today. Our members include environmental groups, unions, First Nations, health and youth organizations, as well as farmers’ groups.
[English]
In addition to being Climate Action Network’s National Policy Manager, I am also the wife of a greenhouse producer. Now, he wanted to attend this meeting today, but, as farmers do, he will have to be up very early tomorrow morning to tend to his crops. It has been a particularly tough year for farmers, for his greenhouse and for many other farms in our area and I know across Canada. Farmers’ jobs seem to be only getting harder, yet year after year they keep at it and they show us the true meaning of resilience.
I am hoping you can support my husband and the hundreds of thousands of other farmers across the country as they grapple with the triple threat of climate impacts, inflation and volatile fuel costs. Unfortunately, that is not what Bill C-234 would achieve.
Climate Action Network vigorously supports carbon pricing. It’s an essential climate policy tool that provides transparency and certainty and drives emissions-reducing innovation across our economy. It works precisely because it applies to everyone and every sector and incentivizes families and businesses to reduce their emissions. By increasing the cost of higher-emitting technologies, carbon pricing directs the market away from high‑emitting fossil fuels. But carbon pricing only works if it is applied effectively and broadly across the economy.
Bill C-234 undermines the market signal that carbon pricing is supposed to send. In fact, it sends the exact opposite message which is that farmers will be rewarded for maintaining the status quo. An exemption for natural gas and propane on farms is an inappropriate policy tool for achieving the objectives of the Greenhouse Gas Pollution Pricing Act. This comes as no surprise, as the bill’s sponsor, Mr. Lobb, has stated that he would “love to have a bill to get rid of carbon tax for everybody.” Poking holes in carbon pricing is the real nature of Bill C-234, not relief for farmers.
That said, while an exemption on carbon pricing is not the right policy tool to do so, Climate Action Network – Réseau action climat, or CAN-Rac, advocates for the need of federal support to help farmers transition and align it with the goals of the Paris Agreement. Research by Farmers for Climate Solutions points to needed new investments of more than $2 billion over five years and 19 beneficial management practices already proven in the Canadian context to reduce greenhouse gases, sequester carbon and increase resilience on Canadian farms.
Now, as legislators, I encourage you to weigh the impacts of this bill not only on farming operations but on the broader policy landscape in Canada. If the exemptions determined in Bill C-234 are approved, where will they stop?
There are equally valid, hard-to-decarbonize sectors which could begin to opt out of carbon pricing. Some examples: health care, long-haul trucking, municipal operations and the list goes on. There is no room for interest-based exemptions from the price on carbon.
I believe this committee is serious about helping farmers to reduce their operating costs, but the only meaningful way to do that is to reduce farmers’ dependence on fossil fuels. Exemptions do not protect farmers from the long-term volatility of natural gas and propane prices. More importantly, by removing the market signal, they neither reward the farmers who have invested in more efficient solutions nor encourage efficiency upgrades and innovation in the sector.
Another concern that CAN-Rac has with regard to Bill C-234 is that it essentially constitutes a new fossil fuel subsidy. On September 15, the Parliamentary Budget Officer released a cost estimate which found that for the year 2030 alone the bill would cost the government $162 million. Canada has committed to eliminating inefficient fossil fuel subsidies. This subsidy, we would argue, is wildly inefficient.
Profits from oil and gas producers have never been so high. These massive companies are profit sharing off the war in Ukraine to dramatically increase their corporate profits. According to the Pembina Institute’s Waiting to Launch report, Canadian oil and gas companies’ free cash flow was a record‑breaking $152 billion in 2022. Profiteering fossil fuel corporations do not need additional government handouts; they need to reduce their own emissions so that hard-working farmers do not shoulder the burden of these companies in action on climate change.
Put simply, Bill C-234 is a short-term solution that creates long-term problems. While we encourage you to reject the bill, we also recommend that you build on policies that drive innovation and shield farmers from the volatile crisis of fossil fuels. This includes solutions that have a direct benefit for all farmers and which further encourage the adoption of more efficient technologies. I have provided more detailed recommendations about these solutions in my brief. As the rest of the economy shifts to low- or no-emission technologies, farmers need smart policy solutions today that increase their resilience tomorrow. Thank you.
The Chair: Thank you very much. Moving on to Ms. Harrison.
Kathryn Harrison, Professor, Political Science, University of British Columbia, as an individual: Good evening. Thank you very much for the opportunity to speak with you today.
I am a professor of political science at the University of British Columbia where I teach and do research on climate policy. I’m currently writing a book on carbon taxation in several countries, one of which, of course, is Canada.
Since 2018, I have been invited many times to give presentations on Canada’s approach to carbon pricing to international meetings. The reason for all of that interest in Canada’s approach is that our carbon pricing policies are well‑designed with broad coverage of emission sources, big and small; revenue recycling to both households and industry; and minimal exemptions. Exemptions, including those proposed by this bill for farm operations, undermine the effectiveness, cost effectiveness and fairness of carbon pricing.
Now at the risk of getting really basic, carbon pricing works through three complementary mechanisms. First, and obviously, carbon pricing encourages fossil fuel consumers — in this case, farmers — to reduce emissions through energy conservation, fuel switching and adoption of new technologies. But there are two other ones. The second is that the price signal creates an incentive for other businesses — in this case manufacturers of farm equipment — to innovate, to come up with less carbon‑intensive technologies. The third one is that ensuring that market prices reflect the real environmental and human costs of carbon pollution sends a signal to final consumers and investors to adjust where they are putting their money, including what products they are buying.
The proposed exemption for fossil fuels used in grain drying and building heating is only about the first mechanism, but my concern is that by exempting farmers from the fuel levy, it is undermining the other two mechanisms.
If farmers don’t have a price incentive to reduce their consumption of propane and natural gas, that weakens the incentive for those other businesses to design and manufacture low-carbon farm equipment.
It also undermines broader market adjustment, including for final consumers. It’s human nature to compare any change to the status quo, “Will I be better off tomorrow than I am today?” Maybe the fundamental challenge with climate change is that status quo is off the table. We are already seeing dangerous and costly impacts of global warming in Canada and around the world at 1.1 to 1.2 Celsius, and that is going to keep getting worse until we reach net zero. The real choice is between modest costs today and much greater costs in the future. Our economy must and will change, whether that happens smoothly — starting now — or painfully.
The lowest-cost way to do that is via a price on carbon pollution, making that adjustment part of the normal business operations. The proposed exemption in this bill is a bad idea because it undermines the scope and thus effectiveness of carbon pricing.
I also fear that it won’t be the last one to come to Canada’s Parliament. In the early 1990s, Scandinavian countries all adopted carbon taxes, and they were the first to do so. They also faced pleas for relief from vulnerable and/or carbon intensive sectors, and one bill at a time they undermined the impact of their carbon taxes through exemptions that reduced coverage of certain sectors, reduced the price for certain sectors or completely eliminated its application to certain fuels. So I urge you to be aware of a slippery slope because other sectors will surely be coming with their requests and arguments that it is unfair that farmers have received a waiver and they haven’t.
To some degree, that has already been built into this particular bill. The exemption of transportation fuels in the agricultural sector was built into the B.C. carbon tax and that was then moved into the federal carbon tax. And now, because that is in the federal carbon pricing bill, there is an argument to extend it.
In the Scandinavians’ defence, carbon pricing was new, but we now know that there are better ways to both support businesses and households in adjusting to carbon pricing without undermining the incentive. We’re already starting to do those, and I think that is the alternative to eliminating the carbon price on these fuel applications. Thank you.
The Chair: Thank you. Mr. Green, please proceed.
Tom Green, Senior Climate Policy Adviser, David Suzuki Foundation: Thank you for the invitation to speak with you today. I have a background in ecological economics. I earned my PhD at the University of British Columbia, so I am pleased to be here with Professor Harrison and with Ms. Cool-Fergus, who, between the two of them, took many of my punchlines.
I am speaking to you from Vancouver in Coast Salish territory. Finally, the rains have arrived in the last few days. Climate change resulted in a supercharged wildfire season, with a tally of over 16.5 million hectares of forest burned across Canada, seven times the 25-year average, turning our forests from sink to a massive source of emissions.
[Translation]
Climate change is already causing problems for farmers, be it in the form of drought, flooding or extreme weather conditions. On a global scale, climate change is compromising food security.
[English]
Economists and climate policy experts agree that a key tool for driving down emissions is carbon pricing. At last week’s Climate Ambition Summit, convened by the UN Secretary-General, more countries joined Canada’s carbon pricing challenge, an initiative that aims to triple the coverage of carbon pricing mechanisms around the world. As the president of the EU commission explained, the EU would be teaming up with other countries “to unlock the potential of carbon pricing worldwide, to the benefit of people, and the benefit of the planet.”
Earlier today, the International Energy Agency released its updated net zero roadmap showing that with bold action and thanks to the rapid scaling up of renewable energy 1.5 Celsius is still within reach, but we have to act. One of the cornerstone policies used in this roadmap is carbon pricing.
What Bill C-234 does is erode carbon pricing by reducing emissions coverage, offering a glaring example of policy incoherence.
It is critical to note that since this legislation was first proposed, Bill C-8 passed into law, ensuring that revenue from pollution pricing applied to agricultural operations in backstop provinces is now recycled in a way that reduces costs to farmers while maintaining the incentive to abate emissions.
Bill C-234 sets Canada on a slippery slope of considering sector-by-sector, special-interest-by-special-interest exemptions. Every sector can come up with their own reasons for why they deserve relief.
Statements by some parliamentarians about their commitment to axing the carbon tax are troubling and suggest this bill is a Trojan horse. Listening to previous interventions on this bill, the claim has been made that Bill C-8 is failing to help producers because the federal rebates do not fully offset the costs associated with the carbon levy. This argument cannot be true sector-wide.
We also have the government making investments in things like the Agricultural Clean Technology Program. Maybe we need more funding for it, but that is more the direction we need.
There are ever more examples of farms that are reducing their fossil fuel consumption and improving energy efficiency. For instance, a poultry farm in Linden, Alberta, has a 175-kilowatt rooftop system. In another case, a poultry barn built with a high efficiency thermal envelope reduced energy consumption by 83% per ton of eggs.
[Translation]
The fact that fossil fuel prices are set in international markets and are so volatile creates uncertainty in the agricultural sector. So it will be advantageous to move away from fossil fuels, and this legislation reduces that incentive.
[English]
As I explained in more detail before the Commons committee, Bill C-234 would entail creating a new fossil fuel subsidy. This is inconsistent with Canada’s commitment to eliminate fossil fuel subsidies.
Finally, the sunset clause offers little comfort since the exemption expires in eight years. It would cause a sudden spike in the cost of fuels faced by farmers, leaving them ill-prepared and creating pressure on Parliament to extend this exemption. Indeed, the legislation as drafted contemplates a postponement of that sunset clause by simple resolution of both houses. We urge you to recommend against passage of the bill. Thank you.
The Chair: Thank you, Mr. Green. Thank you, witnesses, for your presentations. We will go to questions, starting with our deputy chair.
Senator Simons: I am a great supporter of carbon taxes as a clear and transparent way to incentivize people to use less carbon intensive techniques.
It seems to me, with all due respect to Dr. Harrison, that there is a problem with the way that our carbon tax is structured because the flow-through is not going to the farmers based on how much carbon they use, but based on their costs of operation. I was fond of Alberta’s old carbon tax that the Notley government brought in, which did not give money back to individuals but used that money to fund green technology and green transition. It just seems to me that when I hear Ms. Cool‑Fergus talking about the need for investment in technology and the need for incentives — I realize that I am now speaking somewhat outside the scope of this bill — that what we have here is a very blunt instrument that is not giving farmers the help that they need to make the energy transition that they must make.
If you were going to start all over and design a carbon tax that actually worked, would you be more inclined to use the Notley model where the money went specifically to things like green public transit and green technological shift? It seems to me that if you are not giving the money back based on how much carbon you use, the incentive plan is all wrong. I would direct that to Ms. Cool-Fergus and Dr. Harrison.
Ms. Cool-Fergus: I feel that I will get a lot of questions given that I am the person in the room.
It is a great question, Senator Simons. To be honest, I’m not an expert on carbon pricing.
From my understanding of this bill, it simply does not reward those who have already made the effort either to increase the efficiency of the machinery that they do use or to find innovative solutions. This bill is also not an answer to the question that you have asked.
I don’t think that it is a step in the right direction. As you say, the need for innovation and investments in green technologies are slightly outside of the scope of this bill. What is definitely not helpful is maintaining the status quo, where the government is not encouraging producers to reduce their emissions nor is it really providing them with financial relief on a very large scale.
Ms. Harrison: Figuring out a way to provide support using revenues from carbon taxing is pretty tricky. If I were paying $100 per month in a carbon tax and I knew that I was going to get $100 back, it would be like not having a carbon tax and I would not be responsive to that. The trick is designing support mechanisms that do not undermine that price signal.
Currently, there are two. There are the investments in the agricultural technology program. I may have the name wrong, but one possibility would be to put more money in there.
In addition, my understanding of the income tax credit is that they are taking the amount of money in carbon taxes that the federal government estimates is being taken in for natural gas and propane use and then rebating it across the whole sector relative to the scale of different farming operations. I do wonder about that. There is a trade-off there between narrowing the rebates to the sectors that are more carbon intensive without undermining the price signal and without getting the design so narrow that you are basically giving everyone their $100 or $1,000 back. That is what I would look at, namely, is there a way that it could be somewhat more directed without undermining the efficacy of the policy? I think both are good ideas. The question is could we do them in different ways or on a bigger scale.
Senator Klyne: Someone with the name of Alex Cool-Fergus deserves a question, but I have a question for Professor Harrison.
Professor Harrison, pollution pricing has been in effect in B.C. longer than it has been implemented in the rest of Canada, so B.C. should have a lot more data on the payoffs of this policy. Do you have any demonstrable data that you can share with us regarding the reduction of farming sector emissions in B.C.?
Ms. Harrison: One thing about B.C.’s carbon tax is that it was just like mana from heaven for economists because we had one province in a country that adopted a carbon tax but had similar data across provinces. Many high quality econometric analyses have found that the B.C. carbon tax worked and that the impacts were either very small or non-existent to the economy.
I do not know the particular details for agriculture, but I would be happy to send a list of references or copies of the abstracts of those studies to the clerk if that would be helpful.
Senator Klyne: That would be helpful. Thank you.
Senator Oh: The government claims that the purpose behind a carbon tax is to change the behaviour away from the consumption of fossil fuel to renewable energy, yet there’s no commercially viable option to use natural gas or propane for things like grain dryers. Nor is there a viable option for tractors which currently operate on diesel fuel.
How are farmers supposed to change their consumption of fossil fuel when alternative sources of renewable energy are not yet available for their industry to the degree that it is needed?
Ms. Cool-Fergus: There are two different ways of reducing emissions from different equipment across sectors, not just in agriculture. One of them is improving efficiency. More efficient machines currently exist. There are significant differences in the percentage of fuel used, whether you are using an older or a newer and cleaner technology. That is one way that it is possible to have a difference in the fuels that are used. The other way, of course, is innovation. To innovate, we need to develop a market for those innovations to emerge in Canada.
In a previous job, I worked in the municipal sector. I worked on green technologies for municipalities. One example is fire trucks or garbage trucks. Twenty years ago, there were absolutely no options and you had to go with a diesel truck. Today, because of innovation and because there is a market created for this — in large part, thanks to government intervention and supporting those early adopters — there are other ways and there are electric vehicles for both fire and garbage collection.
I am not arguing that there are no marketable solutions right now, but if there is no market signal pushing that kind of innovation, there won’t be any more innovation, whether that is in eight years if this bill comes into effect and is sunset or longer down the road.
Senator Oh: Any comments from Professor Harrison?
Ms. Harrison: Yes. Complimentary to what Alex Cool-Fergus just said, the issue is not just incentivizing the farmers. There are other actors in the market who are being incentivized. The key ones are those who would design, innovate and create that new equipment. If they don’t believe that farmers have an incentive from a price, they are not going to innovate or invest in the same way. My fear would be that, eight years from now, we’ll be in the same situation. The ideal situation is that we would see that innovation. We would see it happening in Canada and adoption happening as soon as it is available.
My worry is also that by exempting these fossil fuel applications from the carbon price, this bill is undermining the credibility of that future price signal. It is sending a signal that says go to Parliament to see if you can get the carbon price on your sector eliminated.
Senator Dalphond: Thank you to the witnesses.
We heard from the previous panel today and before that farmers are the stewards of the land. That is why they embrace innovations in the green economy. I believe that is true. I share that vision of agriculture.
This means that we must have programs to encourage innovation. Ontario agriculture is providing programs and a new type of dryer for grain, for example. The federal government also has put forward some programs. But we are told that these programs are essentially overrun and oversubscribed. When they are released — that is, assuming a number of applicants want to take advantage of these innovations and become greener — we do not have enough. They come now and they say, “Well, there is no alternative.” One witness said, “There is no alternative which is viable.” They qualify it. There are alternatives, but they are not viable.
Should we tell the government that it is going about it the wrong way by giving a rebate to farmers? Would it be better to use all of the money collected from the price on pollution to subsidize innovations and transformations instead of returning the money to the farmers?
Ms. Cool-Fergus: Shall I go first?
Senator Dalphond: Yes, any of you. I understand that you are a farmer and there is an economist or a PhD in this issue and a professor, so split your time.
Ms. Cool-Fergus: I will let the economist and the PhD answer.
Mr. Green: Sure. Thank you for the question.
There are interesting policy design questions about how you recycle revenue. It does make sense to reduce the costs for farmers because they are price takers on international markets, so revenue recycling makes a lot of sense. You can do it in a way, as the government has done, so that it does not undermine the price signal. That makes sense.
Another option might be to look at the fact that, for instance, the oil and gas sector has had extreme profit this year, and we could be taxing that at a higher rate and capturing more of that money and having more funds across the economy to invest in programs like the Agriculture Clean Technology Program.
One could also split the difference and give 50% of the money back — rebate it to farmers — and put more into a technology fund.
Another point on that fund, that fund is oversubscribed, but it is broader than just the individual operations that do get to put in a more energy-efficient dryer, for instance. It improves knowledge across the sector. It upscales the solutions provider, and that helps drive down costs over time.
So you are not necessarily looking for a fund that would fund every farm getting a more efficient grain dryer, but you are trying to push along the technological frontier and bring up the capacity of the solutions providers to arrive at farms with good solutions.
Ms. Harrison: I have nothing to add to what Mr. Green just said.
Ms. Cool-Fergus: I have a personal anecdote. I said that my husband is a greenhouse producer. We’re in Quebec, so this law would not apply to us.
However, over the past year, he has begun the transition from his greenhouse away from natural gas to air-source heat pumps. As much as he is willing — and he is clearly an early adopter — there is no way that he could have done that simply by the cost savings that he will incur eventually because no one would accept that as a financial business case.
He did require a lot of different government interventions. In Quebec, we have certain programs that do not exist in the rest of Canada. But those programs have been extremely helpful, and he is able to fund an electrical alternative to his greenhouse.
That is one example. Government intervention, programs and rebates — programs are necessary and rebates are continuing with the market signal.
Senator Klyne: He is an early adopter, though, who is not rewarded for it.
Senator Woo: Thank you to the witnesses. I have a question for Mr. Green and Dr. Harrison, and then one for Ms. Cool‑Fergus.
The question for the B.C.-based witnesses is on the design of the refundable tax credit and whether a slightly more targeted approach could be contemplated. I am hesitant to even suggest it. However, to the extent that we want to preserve the price signal but improve the coverage of the tax credit to the farms that dry grain and the farms that have broiler chickens for eggs and so on, what do you think about narrowing that rebate to that subset of farms? I am presuming that Canada Revenue Agency can identify them, first of all.
It would, in some senses, take away some of the incentive because you are getting back more of money that you spent on natural gas, but by the same token, there is still a price signal. The farms that have invested in more energy-efficient sources for heating their barns, for example, will benefit from it.
Could I get a response to that idea?
Mr. Green: Sure. Thank you for the question.
It is definitely a better approach than what this legislation does. If there is need to tweak the rebates, that is the way to go; it makes much more sense than removing the pricing signal.
Some of the examples I have seen are more claims that are made, and I have not seen the documented analysis about the costs of different operations. There are some numbers from Agriculture and Agri-Food Canada and the Parliamentary Budget Officer on what a different kind of operators have and how much of their total costs are based on fuel.
I actually don’t think the variability is — it is there, but I am not sure it really deserves the tweak. One would have to dig into concrete numbers more to determine that.
Ms. Harrison: Similarly, I am not sufficiently familiar with the costs and variations within different sectors to know how much would be lost.
I can see some benefit in this, potentially, but I also worry that this one could easily become one of those slippery slopes where there is a lot of variation in the operating costs of many different farmers. We were hearing about them from the previous panel that, in some regions, it is more costly and it is not in others. That is just part of the cost of doing business. We don’t subsidize certain farm operations versus others based on that.
It would be a tricky balancing act and one that would need to be undertaken by people who really have that kind of granular knowledge of the cost structures.
Senator Woo: Thank you for that.
If I could pick up on the point about variability in farm incomes, we talked about this in the last panel as well. My own suspicious is that the source of variability is much less due to on‑farm fuels, particularly natural gas and propane, perhaps in the order of less than 0.5%. However, volatility is still a big problem for farmers because you are price takers and stuff happens in the world; crop prices collapse all of a sudden.
You had suggested, Ms. Cool-Fergus, that there should be some kind of support for price volatility on farms in general. Could you talk more about that? That is really the macro problem facing farms in general. We are zooming in on one very small part of the volatility problem that may not even be that big of a deal in the scheme of things.
Ms. Cool-Fergus: In this particular case, when we are speaking about on-farm fuels, the easiest way to remove that volatility is to reduce the amount of fuel that is required. That is, simply put, what I am suggesting and what I believe is truly necessary. The government can play a big role in doing that work because as we’ve seen with the war in Ukraine, the Canadian government does not control the price of fuel.
Yes, natural gas and propane have dropped quite dramatically over the past couple of years, and they are expected to continue to for a while. But there’s nothing that is guaranteeing that that price will not just jump back up eventually.
Senator Osler: Thank you to the witnesses for being here today.
This bill contains an exemption for natural gas and propane. We have heard about the farmer tax credit in the Agricultural Clean Technology Program. I would be interested to hear from all three witnesses if you feel that there is sufficient pressure or incentives for the equipment makers to innovate and produce the scalable viable alternatives to fossil fuel grain-drying methods.
I am hearing the farmers are feeling squeezed, but with the market, is there enough pressure and/or incentives on the equipment makers? Maybe we will start with Ms. Cool-Fergus.
Ms. Cool-Fergus: I cannot pretend to be an expert in this specific sector. That is not my expertise.
I know many people have made this comparison already, but it is like the automotive and electric vehicle sector. If the government hadn’t set targets for electric vehicles on the road by 2035, I don’t believe that the market would be where it is today, but we see a huge uptake in people adopting electric vehicles. I do not believe that is an accident.
I am not sure, and I don’t have a full answer to your question, because I don’t know that market intimately. However, I would posit that is likely where the market would go if there were not just regulations but an ecosystem that was supporting that kind of innovation and sending those kinds of market signals.
Senator Osler: Professor Harrison and Mr. Green?
Ms. Harrison: Thank you for the question; it is an important one.
In the previous panel — I was listening in with great interest — the panellists spoke about how important it is for farmers to innovate and to invest in improving the efficiency of their practices. I have no doubt that they do that. I come from a family of farmers myself. They are business people, and they are going to invest as long as it pays off for them.
The problem is that they won’t necessarily invest in things that have social benefits rather than benefits for their own private operation. That is what the carbon price is doing. It is taking those social benefits and bringing them into the market.
My concern is that without the carbon price, we won’t see farmers investing as much as we need to in order to achieve our climate goals. If the farmers don’t have incentives to make those investments, then the equipment manufacturers who sell their products to the farmers also lack sufficient incentives. It is a combination of the two that are both influenced by carbon pricing.
Mr. Green: When I first got involved in this file and appeared before the House of Commons committee, I did some research and was delighted to discover that one of the equipment providers was marketing their biofuel grain dryer on the basis that it would help farmers save money on the carbon levy. That is exactly the kind of thing we want to see, that people who produce equipment are looking at opportunities. I have no doubt that, over time, we are going to see more and more heat pump powered grain dryers — which we already see for other crops in other countries — starting to make more inroads into Canada.
Another thing the committee could do, which would be helpful, is study ways to accelerate the deployment of renewable power and good connections to the grid for agricultural producers across the agricultural landscape in Canada. Thank you.
Senator Pate: Thank you to all of you for being here.
I am not a farmer. I don’t come from a farming community. I did visit a permaculture farm this summer, and it was incredibly impressive to see to no reliance on fossil fuels. You are nodding, so you know what I am talking about. I had no idea about these things before.
The innovation there was really spawned by a young man, who is the youngest of a family of farmers, who wants to see farming continue but on a small level, not on the macro level that some on the former panel were talking about. I am curious about how much we’re seeing that kind of innovation growing, but also a question that someone who knows more about this than me prompted me to ask is that the federal government has committed to conducting a review of its carbon pricing policies by 2026.
You mentioned — and I’m looking at you, Ms. Cool-Fergus, because you are right here — that if a review is eight years down the road, then innovation may not happen for those eight years. If there is supposed to be a review in 2026, it makes me wonder why there is an eight-year sunset clause if, in fact, there is supposed to be a review before then.
I am interested in your perspective on that as well as the folks in B.C., if they want to comment.
I apologize, Mr. Chair, that this is a bit out of the scope of your committee, but I’m interested in the whole idea of more focused development of sustainable farming, and if I saw an anomalous situation or if that is actually something that is a bigger trend.
Ms. Cool-Fergus: I will start with the question about the eight years.
To be frank, I would disagree with the eight-year timeline. I don’t believe that this bill should be adopted. I believe it undermines not only innovation, but also the efforts that we heard about.
I read the testimony from the last committee meeting where public servants were sharing that it is likely that demand is going to exceed the amount of funding that is available for farms to be supported on their journey towards reducing their dependency on fossil fuels. That is very positive news. That also means that maybe there’s room to look at these different programs and to supplement them so that all farmers can be supported.
On the permaculture piece, I’m not going to be telling farmers what to do, but I know that there have been very successful programs in Canada, as well as abroad, to support the health of soil, to support more biodiversity and that those kinds of agricultural practices — which, by the way, also sequester much more carbon — have also led to increased outputs regardless of the type of farm. That is something that is interesting and deserves to be looked at.
An example that I would provide — and I’m sure there are much smarter people than me who can provide more relevant examples — I know that in the U.K., after Brexit, when they had to develop their own agricultural policies to replace those that were being promoted by the European Union, they started looking much more seriously at the impacts that biodiversity had on farms and started building that into their programs because they recognized that it increased outputs.
I’m happy to discuss more about that later, but I will pass it over to the others.
Ms. Harrison: I have nothing to add on permaculture farming. It just sounds very cool, and I will have to look it up.
On the review of carbon pricing, I am delighted to hear that will happen. The previous one that was done in 2021 had a big impact in identifying inequalities across provinces, and the federal government’s backstop closed loopholes. So I’m glad that that is going to happen.
My worry is about exempting a carbon price on an important sector before then because these are capital-intensive investments. It means that they last a long time. Between now and 2026, we could have farmers putting tens of thousands of dollars into fossil fuel intensive investments.
Mr. Green: On the innovation in farming, I had some interesting conversations with the folks from Farmers for Climate Solutions. I think that there is a lot of permaculture and other kinds of experimentation going on. People in Canada are very concerned about the rate at which we’re losing biodiversity and the rate at which we’re having soil erosion, climate change and so on. Many people are working on these issues.
There is the price signal that causes people to change behaviour, but I think a lot of us are acting based on the fact that we really want to see a different world, and I hope that that’s what guides the committee today.
The Chair: I have a question, and then we will wrap it up because no one has signalled for a round two.
We heard in testimony last week that grain dryers are amortized over many years, and it costs hundreds of thousands of dollars to put some of them in. How do we say to farmers that they have to do better before that cost is amortized and they have paid off that loan? How do we say that they have to get rid of that one dryer to try something better when we’ve also heard that there are no alternatives in the pipeline or technology on the horizon that is viable? How do we respond?
I would like to hear from all three of you. We will start with Mr. Green.
Mr. Green: Thank you for the question. My understanding is that a drain dryer is a very large piece of equipment with a lot of different components to it. The fact that the price on carbon keeps going up doesn’t mean that you have to throw out the whole thing and replace it, that they would be able to do retrofits.
The key thing is, as Professor Harrison pointed out, we’re worried about the people who are going to start making investments next year, the year after and the year after that. We want them to see the price signal.
This is a thing that is happening across the economy, and it’s a problem faced in every sector. If we applied this argument to other sectors, we would eviscerate carbon pricing, our emissions would keep going up and the world would keep going into a more perilous state.
Ms. Harrison: I also think that’s why maintaining a predictable price signal is so important. These are people making multi-decade investments, so knowing what to expect and it being predictable is essential for them. They may want to delay to wait and see, but I also think that the longer we wait, if we exempt, we are more likely to have stranded assets and to have greater demand for taxpayer support for shutting down equipment that already has lots of life in it. That’s one of the advantages of carbon pricing with a predictable and steadily increasing carbon price.
Ms. Cool-Fergus: I would agree with the two other witnesses today. One piece I would add is the importance of not only providing support, like rebates or financial support, but also accompanying farmers in a very real way. Supporting them throughout their process, whether they are at the very beginning, not knowing anything at all about the existing alternatives or efficiency, or whether they are willing people who are ready to jump in but require support on choosing the right kind of technology for their farm. I think this is a very low-cost solution that can be provided to farmers.
I know that in many cases related to reducing emissions, half the battle is in the operation. It’s a question of when you operate your machine, how you do it and making sure that you are turning it off at the right moment. There are all these different tiny pieces and little pieces of efficiency that add up to a larger number. I think that can be done as a first step for those who have just recently invested in high-emitting technologies.
There are solutions to be taken from other sectors, and I think that the building sector is an interesting one because it is faced with very similar issues. If you just bought a new boiler that works on natural gas and you are being told to convert to a heat pump, what do you do? We can look to those sectors to understand the arc of innovation that has to happen over time.
The Chair: Thank you.
Colleagues, I would like to thank our witnesses on your behalf for their participation in our meeting. Folks, your assistance in the committee’s examination of the bill is very much appreciated. Thank you, Dr. Harrison, thank you Mr. Green and thank you Ms. Cool-Fergus.
Thank you, committee members, for your active participation and thoughtful questions. I also want to thank, as I tend to, the folks and staff that support us and are behind us here. Your help, in so many ways, is very much appreciated.
Our next meeting is planned for Thursday, September 28 at 9:00 a.m. — that’s this Thursday — when we will continue to hear from witnesses on Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act. I would like to have a short in camera session. I won’t keep you for more than four minutes. We’ll suspend. Is it agreed that we suspend?
Hon. Senators: Agreed.
The Chair: Thank you.
(The committee continued in camera.)