THE STANDING SENATE COMMITTEE ON AGRICULTURE AND FORESTRY
EVIDENCE
OTTAWA, Thursday, September 28, 2023
The Standing Senate Committee on Agriculture and Forestry met with videoconference this day at 9 a.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: Good morning, everyone. I would like to begin by welcoming our witnesses, both in person and online, and welcoming members of the committee, as well as those watching this committee meeting on the web. Thank you for being here this morning. My name is Robert Black, senator from Ontario, and I am the Chair of the Agriculture and Forestry Committee.
I would like to start by asking the senators to introduce themselves, starting with the deputy chair.
Senator Simons: Hello. I’m Senator Paula Simons from Alberta, Treaty 6 territory.
Senator Cotter: Good morning. I’m Brent Cotter, senator from Saskatchewan.
[Translation]
Senator Petitclerc: Good morning. Senator Chantal Petitclerc from Quebec.
[English]
Senator Osler: Gigi Osler, senator from Manitoba.
Senator Woo: Good morning. Yuen Pau Woo, British Columbia.
Senator Oh: Good morning. Senator Victor Oh from Ontario.
The Chair: Today, the committee is meeting on Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act. Our witnesses on the first panel are Yves Giroux, Parliamentary Budget Officer, accompanied by Nasreddine Ammar, Advisor-Analyst. It’s nice to have you both in the room today. Mr. Giroux, you have five minutes for your opening remarks — the floor is yours.
Yves Giroux, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Good morning, Mr. Chair and members of the committee. Thank you for the invitation to appear before you today to discuss our most recent report on the cost estimate of Bill C-234. With me today is Mr. Ammar, the lead analyst on the cost estimate.
On June 23, 2021, we published a legislative note assessing the cost of the federal carbon tax exemption for marketable natural gas and propane used by eligible farming machinery as outlined by Bill C-206 in the Forty-third Parliament. A related bill — Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act — was introduced in Parliament on February 7, 2022. This bill proposes an extension to the list of farming machinery eligible for the federal carbon tax exemption to include property used for providing heating or cooling to a building or similar structure, including those used for raising or housing livestock and grain dryers.
[Translation]
In April 2022, we released an estimate of the cost of Bill C-234 for Alberta, Saskatchewan, Manitoba and Ontario.
Most recently, on September 15, 2023, we refined our estimate of the cost of Bill C-234 by expanding it to include the Atlantic provinces, and incorporating new projections, provided by Environment and Climate Change Canada, of natural gas and propane used in agriculture, by province.
We estimate that Bill C-234, if passed, would result in $76 million in carbon tax exemptions for farmers in 2023-24. Those exemptions would increase to $162 million in 2030-31.
To conclude, Mr. Chair and esteemed members of the committee, I would like to thank you for the opportunity to present this information to you. We remain at your disposal to clarify any aspects of our cost estimate or to provide additional information.
Thank you very much.
[English]
The Chair: Thank you, Mr. Giroux. We will move on to questions. Before asking and answering questions, I would like to ask both members and witnesses in the room to please refrain from leaning in too close to the microphone, which will avoid any feedback that could affect our committee staff who support us in this room.
As has been our previous practice, I would like to remind each senator that you will have five minutes to ask your question and have it answered. If we need to go to a second and third round, we will do that.
We will start with our deputy chair.
Senator Simons: Thank you very much, Mr. Giroux. It’s always lovely to have you in front of us.
I’m really intrigued. Going through this report, I confess that I was surprised. I’m from the Prairies — Alberta — and I had assumed that Alberta and Saskatchewan would be the greatest beneficiaries of this change, so I am intrigued while going through it. I know Ontario is a bigger province, but their use of natural gas and propane is much higher according to these numbers in terms of the amount of money that is being spent.
You have an estimate, if I am reading this correctly, that by 2027-28, this change — in Ontario — would account for $63 million for natural gas and $13 million for propane versus in Manitoba where there is very little use, and no money missing from the federal treasury for natural gas and only $5 million for propane. In Saskatchewan, you have no propane use at all and $22 million for natural gas; and in Alberta, there’s another $22 million for natural gas and a minimal amount for propane.
I am intrigued by those numbers, and I want to start here: if you understand why Ontario is so much higher. Is it just a question of size, or due to the kind of crop they’re growing because it’s more corn than wheat? I don’t know if that’s in your purview to answer.
Mr. Giroux: That’s an interesting question, and it’s a question I asked myself when I initially saw the numbers. First, it’s important to note that “zero” does not necessarily mean zero — it means that it’s anything below half a million dollars; we round that down to zero. It’s also not necessarily speaking to the use of propane and natural gas, but it’s the amount of carbon tax exemption as a result of Bill C-234. So there could still be a measurable use of propane and natural gas in provinces where we show a zero, but the carbon tax exemption — especially in the first couple of years, with the carbon tax being lower — is not a significant amount of money in the grand scheme of things.
With respect to the fact that Ontario and Manitoba, for example, have significantly different usage or exemption impacts, it speaks to the different structure of each agricultural sector. Maybe Mr. Ammar has more information than me on that. It also speaks to the various uses and energy input in the housing of livestock and also greenhouses, which are a bit more prevalent in Ontario than in the other provinces.
Nasreddine Ammar, Advisor-Analyst, Office of the Parliamentary Budget Officer: You’re right; the size of the province also plays a role here. If I look to the numbers provided by Statistics Canada, for example, they found farms reporting positive operating expenses in Ontario are about 40,000 farms in comparison, for example, to Manitoba, which is about 11,000 or 12,000. That plays a role as to why Ontario has the biggest share of that exemption.
Activity types are also a factor. There is variety between the provinces, such as the share of each farm type, animal production or crop production, so it depends — whether it’s greenhouses, grain, et cetera. These sectors have different kinds of fuel for their activities.
Senator Simons: I was shocked to see this would save Manitoba farmers almost nothing compared to Ontario farmers.
In the chart, you have the numbers going up and up. Let’s look at Ontario because they have the largest numbers. You are estimating that in 2023-24, this exemption would cost the federal government $38 million in natural gas for the carbon tax, but you have the estimates going up and up so that by 2027-28, it is $63 million.
We’re told that there will be a transition, and that people will find more energy-efficient ways to do these things. Yet, you show a curve going sharply up, and I’m wondering why.
Mr. Giroux: It’s mostly because of the increase in the carbon tax itself, which will go from $65 per tonne of CO2 equivalent in the current year to $170 per tonne by 2030-31. There is expected to be a transition — for some producers at least — away from fossil fuels, but the impact of the increase in the carbon tax will more than offset that transition away from fossil fuels.
Senator Simons: I’m just absolutely fascinated by the difference, and that this will save Prairie farmers very little compared to Ontario farmers.
Mr. Giroux: That is, indeed, a bit surprising. This data was provided by Environment and Climate Change Canada. We shared some of your surprise.
Senator Simons: Okay. Thank you very much.
Senator Oh: Thank you, witnesses, for being here. Can you provide classification for the rake up? At first glance, your latest costing note on Bill C-234 shows zero for Atlantic Canada, but I understand it appears this way because of formatting — and the actual cost is not zero.
Could you provide this committee with the actual amount that farmers in Atlantic Canada will pay for the carbon tax on propane and natural gas if they are not granted these exemptions?
Mr. Giroux: It’s certainly something that we can provide to the committee — not rounded but actual numbers. However, given that these are relatively small numbers, they might not be as reliable. If we provide the committee with a number that, for example, says $358,000, I wouldn’t want you to assume that it will be exactly that amount. That’s why — below a certain threshold — we round the numbers up or down: It’s to avoid giving a false impression of precision, but we would be happy to provide the committee with the unrounded numbers for Atlantic Canada.
Mr. Ammar: Actually, the number exists on the website. The note is released. There is a link to the Excel file, so you can see the third decimal of the zero numbers. You can see exactly what that costs in thousands of dollars.
Senator Oh: So it’s on the website?
Mr. Ammar: Yes, there is a link. I can send you the link to that, so you can see it.
Senator Woo: Thank you, Mr. Giroux and Mr. Ammar. I have three technical questions. I hope we can get through it in my five minutes. The first is regarding the “up and up” comment from Senator Simons. Can you give us a sense of the substitution effect that can be assumed in the use of natural gas and propane until 2030? You may not have the answer, and, if not, maybe you can refer us to the underlying assumptions around the substitution of natural gas and propane for better fuels.
Mr. Ammar: Exactly what do you mean by “substitution”?
Senator Woo: They make some assumptions that natural gas and propane will be used in lesser amounts, even as the price of carbon goes up. I would be interested to know what those assumptions are. Will farms be using half as much natural gas and propane by 2030? What kind of behavioural assumptions go into that calculation? It’s not work that you did, as I understand, but I would be interested to find out the premise behind your estimates.
Mr. Ammar: Of course, we can investigate that, senator, but I just want to let you know that these numbers, such as the projection of the use of natural gas and propane, are provided by Environment and Climate Change Canada. We are implicitly using their assumptions, so maybe we can investigate with them, and see if they can provide answers about the substitution.
Senator Woo: Thank you. That would be very helpful.
Mr. Giroux: It is my understanding, senator, that there are, indeed, some substitution effects from fossil fuels to biomass, new fuels and solar, for example.
Senator Woo: I would be interested to see the composition effects and the speed of change and that sort of thing because, obviously, a small change in these assumptions will change your figures very dramatically.
The second question is on the relative costs of the impact of the exemptions — relative to total farm operating costs. I’m trying to get a sense of materiality. These numbers, depending on your perspective, seem quite big or quite small, but the way to measure it is to ask how much they are in comparison to the farms’ total operating costs. Do you have a sense of that?
Mr. Giroux: Yes, we have estimates of that. Based on available data, expenditures for the farm sector amounted to $77 billion in total — $3.4 billion of which is related to all types of fuel. Natural gas and propane represent less than 1% of operational expenditures of farms, but farms can be defined widely.
Senator Woo: These numbers sound big when you say them, but they are very, very small relative to the total operating costs of farms.
Mr. Giroux: Yes, the carbon tax, relative to the overall expenditures of farms, is very small.
Senator Woo: It is less than 1%. This is my third question: We talk about the cost of the exemption, or the cost of the carbon tax. Sometimes we talk about it in terms of the cost to the treasury because they are not getting their revenues. Sometimes we talk about it as a cost to the farms if they have to pay those taxes. But, in fact, the way the program is designed, if there is no exemption, all the revenues that go to the government are rebated to the farms in aggregate. I know there might be some slippage because they have to define the amount, but is it not correct that there really is no cost, as such, to anyone in the sense that the program is designed so that any money taken from the farm sector — due to the surcharge on fuels — is returned to the farm sector in aggregate so that it nets out, and so that no one actually has a real cost or a net cost?
Mr. Giroux: It’s true that it’s rebated to Canadians — it’s about 90%, with the remaining 10% allocated to the most affected sectors. But if a producer pays a carbon tax, it doesn’t necessarily mean it’s rebated to producers. It’s rebated to citizens in that province. For the economy as a whole, it’s true that there is a recycling to the tune of around 90% of the carbon tax.
Senator Woo: There is another rebate — the specific rebate that goes to farmers — because of the propane and natural gas use. That goes to farmers only — isn’t that correct? It doesn’t go to consumers in general. In aggregate, I think, the money that goes back to the farm sector as a whole is, more or less, equal to the amounts in your estimate. To speak of it as a cost to either the treasury or to the farmers is not quite correct. It’s sort of giving with one hand and taking back with the other.
Mr. Ammar: That is true if we talk about the dollar value. You’re right; the revenue that we collect and the fuel charge are returned to the farmers. The remaining 10% would be returned, for the most part, to the farmers. But the effect here depends on how they use this money. It’s not just money that would be given directly to the farmers. If we compare the fuel charges to be collected throughout the [Technical difficulties] to the household. Here, it’s different. [Technical difficulties] would be used as a support for clean technology, perhaps, and other aspects of investment.
Yes, the rebate cost would technically be zero because there is a return of this money, but the indirect cost is that we avoid that kind of pass-through.
The purpose of the carbon price is to get a higher price for this kind of product, so we incite the consumer to consume less. For example, with greenhouse gas, or GHG, emission-intensive products, if you exempt the farmers from paying this carbon tax, there is no pass-through. In this case, the price will not increase in response to the carbon price. That could change the behaviour of the consumers.
Senator Woo: We may need clarification. There are funds set aside to incentivize or to help farmers adopt new technologies, but that’s a separate fund from the rebates provided unconditionally to farmers based on the farm’s size. My point is that because all of the funds are given back to the farm sector as a whole, to speak of a cost to the farm sector is not quite accurate. When people talk about the cost to them, it is true that some farmers will get back less than they spent, but — in aggregate — there is no net cost for the farm sector. That’s my simple point.
Mr. Giroux: You are right in aggregate, but for the individual producer, it’s different. In short, you are right. That’s probably something you would like me to repeat.
Senator Woo: No.
Mr. Giroux: When my wife or my kids tell me I’m right, I make them repeat it just for the fun of it.
The Chair: You don’t need to repeat it anymore.
Using the chair’s prerogative, to question this once more, if a mushroom farmer south of Ottawa pays $150,000 in carbon tax, he doesn’t get that back, is that correct? He will get $875 back. The farm sector will get that back. I’m picking a number.
Mr. Giroux: Yes, depending on the design of the program.
Senator Cotter: Thank you, gentlemen, for being here once again. We appreciate the insights you bring to us every time. I was trying to read two reports online at the same time, but it’s easier if I ask the question, I think.
Up on the screen, I have the examination of the effect that Bill C-234 would have. I was also trying to look at the overall farm fuel exemption. Could you give us a snapshot of how much this is in proportion to the larger farm fuel exemption and the study that you have done?
Mr. Ammar: When you talk about the larger farm fuel exemption —
Senator Cotter: It’s the exemption available for driving your tractor around the field and harvesting your crops compared to this one that is much more targeted to the grain dryer world and farm buildings.
Mr. Ammar: You mean the exemption on diesel and gasoline?
Senator Cotter: Exactly.
Mr. Ammar: We don’t have the exact numbers here, but we can provide you with that later.
Senator Cotter: Thank you.
Senator Dalphond: To follow up on Senator Cotter’s question, would I be right to assume that the current exemption that applies only for combines, tractors and machinery use on the farm will be a small amount compared to what you have estimated here for natural gas and propane — because it’s being used not only for some equipment, but also for heating, which I guess is more expensive than to run the tractor for the full day?
Mr. Giroux: You are correct; if you’re looking at only machinery and equipment, it varies widely according to the type of operation and the type of farm. However, it could be significantly lower, especially if you are talking about greenhouses, for example, or farms that need to dry their grain, where propane and natural gas could be a significantly higher proportion or expenditure compared to operating tractors and machinery in general.
Mr. Ammar: I’m not sure that is correct. While it’s true that heating will require a lot of natural gas and propane use, when I look at the numbers here, the fuel expense for machinery and motor vehicles is about four times the fuel used for heating and curing. Technically, I think the gasoline and diesel used by farmers could exceed, in dollars, the amount used for natural gas and propane.
We need to get more of these numbers, and see the share of each type of fuel for these kinds of activities.
Senator Dalphond: You revised the third one. Thank you very much.
You have been providing a lot of information about Bill C-234 over the years and the precedent bill. Ontario, for example, represents the lion’s share. My rough calculation is that 57% of the carbon tax will be collected in Ontario. Do you have any idea about how much natural gas and propane are targeted to drying grains?
Mr. Ammar: I have this number in terms of the dollar value for expenses — it’s not specifically for natural gas and propane, but it’s the total for heating and curing fuel. We estimate that about 8% to 10% of that is used for oilseed and grain farming.
Senator Dalphond: So drying would be 8% to 10% of the amount indicated for Ontario?
Mr. Ammar: It’s just for oilseeds and grain. The share of drying in the total heating fuel for all farms is about 8% to 10%.
Senator Dalphond: Drying represents — for those doing this type of production — about 8% to 10%. You don’t have the number for corn and other things?
Mr. Ammar: The biggest share in Ontario, for example, for the use of this heating fuel is in greenhouses and nurseries. About 57% of that total heating fuel used by farms is assigned to greenhouses and nurseries. That’s the biggest share. The lowest share is for oilseed and grain farming. In terms of the dollar value, that’s what is shown in the data from Statistics Canada in 2021.
The Chair: What was the number again?
Mr. Ammar: The use of heating fuel by greenhouses is about 57% of the total heating fuel used by all farms in Ontario.
Senator Cotter: Sorry to interrupt, Senator Dalphond, but was the earlier question about oilseed and grain drying for Ontario as well?
Mr. Ammar: Yes, that’s the 8% that we talked about. Greenhouses are mostly exempted, so about 80% of the fuel used is exempted from the carbon price.
Senator Dalphond: I know. What you have indicated for Ontario includes only 20%, I guess.
Mr. Ammar: We calculated the 20% in these new estimates, but we took off the 80% that is already exempted from the calculation.
Senator Dalphond: If I look at Ontario, the revised number for 2023-24 is $44 million. That will include the cost of natural gas and propane for heating up greenhouses, but it’s only the price they pay, which represents 20% of the carbon tax.
Mr. Ammar: Yes, that includes the 20% for greenhouses.
Senator Dalphond: If I were looking at the drying of grains and oilseeds in that $44 million, how much would that percentage be, or how about the amount? If you don’t know, you can provide that information later.
Mr. Ammar: I don’t have that right now — by the type of farm — but I can look at that later. You can get an idea if you apply the 8% to 10%. However, since we are considering only 20% for greenhouses, which have the biggest share, we need to recalculate that to consider how much that would be.
Senator Dalphond: I would like to focus on the drying operation. In Ontario, this bill will make it exempt from the carbon tax for one third — roughly — of the grain drying. The remaining two thirds will remain subject to the surcharge.
Mr. Ammar: Actually, in our calculation, we don’t take into consideration that separation between what’s used by the commercial grain elevator — because we don’t have this data, but because the estimates could be considered the upper bound of the costing.
And as I said, since the share of grain is not that big for Ontario — and, specifically, it does not affect the result that much — the result that we gave should be the correct one, and should represent the upper bound of the estimates.
Senator Dalphond: Thank you. I guess we’re going to be provided with that.
The Chair: Yes, thank you.
Senator Simons: Following straight up on Senator Dalphond, can you tell us, sir, the comparable numbers for the three Prairie provinces? I mean, there are greenhouses in those provinces, but they’re much smaller. Let’s consider Alberta because that’s my home.
What percentage of that would be for grain and oilseed drying versus livestock, barns, greenhouses and such?
Mr. Ammar: Like the GHG emissions?
Senator Simons: The same numbers you gave Senator Dalphond for Ontario.
Mr. Ammar: Oh, for Alberta? Yes, I think I can provide you with that.
Based on the 2021 data from Statistics Canada, the share of oilseed and grain farming is much higher in Alberta, actually. Heating fuel and curing fuel represent 34% of the oilseed and grain farming in Alberta, relative to the total farm heating fuel expenses. In Alberta, it is the largest. Also, there is a big share of that used by animal production in Alberta, which represents 46%.
Senator Simons: So that’s for heating barns?
Mr. Ammar: Yes, in Alberta for heating. I’m talking about heating fuel expenses here.
Senator Simons: That’s really interesting.
Coming back to the Ontario number, if we’re already rebating the greenhouse operators at 80% — well, this isn’t a fair question to ask, but I’m going to ask — does it even make sense to have them included in this legislation?
Mr. Giroux: That’s an interesting question for you to decide as legislators.
Senator Simons: Sorry. It was the question that fell out of my brain. It’s probably not an appropriate question for you at all.
To come back to Senator Woo’s point, it’s not like the Canadian taxpayer or the Canadian treasury is going to be out this sum of money because it would have been recycled anyway, even if — to take Senator Black’s point — it doesn’t go back to the individual farmers. So it’s not as though we’re saying, “Oh, the treasury is going to be out $131 million of Alberta revenues.”
Mr. Giroux: Yes, that’s a fair point.
Senator Simons: If you could provide us, Mr. Ammar, with the sectoral breakdown — in the way you’ve just done for Ontario and Alberta — for all the provinces, that would be hugely helpful.
Mr. Ammar: Yes, I think I can.
Senator Simons: Thank you very much.
The Chair: Again, as the chair, I would just point out if you could send that as soon as possible, that would be great.
Thank you very much.
Senator Cotter: I was just wondering, Mr. Ammar, if you have at your fingertips that breakdown with respect to Saskatchewan — percentage-wise — that you shared for Ontario and Alberta. Is it available to you right now?
Mr. Ammar: Just to clarify something, these numbers from Statistics Canada are the dollar values of heating fuel that is used. However, in our estimate, we are using Environment and Climate Change Canada’s projection of natural gas and propane used in the agricultural sector overall.
The reporting of that, in terms of GHG emissions — and after that in terms of carbon costs — will be different since we should take into consideration the emission intensities of each type of fuel, and the share of these fuels in each activity within each province.
Unfortunately, we don’t have this data right now, but maybe we can make an approximation to have a rough idea of the share of each type of operation in every province, like you asked. But the number that I gave you is the dollar amount of the heating fuel expense — it’s heating fuel, not just natural gas and propane. There could also be small volumes of other types of fuel that could be used for that kind of operation.
Senator Cotter: Let me repeat my question: What are the numbers for Saskatchewan?
Mr. Ammar: Sorry.
Senator Cotter: I’ve learned this from Senator Dalphond.
Mr. Ammar: Yes, sure. I can give you a quick number here.
In Saskatchewan, for example, for oilseed and grain farming, they have the biggest share, actually, of heating fuel used relative to their farms. It’s about 60% of heating fuel used by oilseed and grain farming in this province.
Senator Cotter: Is there a number for livestock?
Mr. Ammar: For animal production, it is about 34% or 35%. That’s the 2021 data.
Senator Cotter: Thank you.
Senator Woo: You’ve been very helpful. Thank you for the work you did in appearing before us.
If you’re able to provide the additional data and the assumptions behind the projections for the use of natural gas and propane, could you also provide us with assumptions made on the price of natural gas and propane, and how that factors into your simulation?
Mr. Ammar: Like the price itself?
Senator Woo: Yes, the projection of prices.
Mr. Ammar: The prices have not affected our costing since this costing is based on the fuel charge rate, and fuel charges are fixed, so we know how much will be applied until 2030-31. It does not really depend on price. The price will affect the use of this fuel based on consumption, and that could affect the projection indirectly.
But that exercise, again, was made by Environment and Climate Change Canada, so they have their assumption of what the price of natural gas and propane will be in the future, and, based on that, I assume they made their projection.
Senator Woo: Hopefully, we will be able to see what the assumptions were in the Environment and Climate Change Canada projections, and how those price assumptions affect the substitution that they presume to have taken place.
Senator Dalphond: To follow up on this, I know it’s not a tax; that’s why it’s recycled. And the Supreme Court said it’s a charge — not a tax.
To follow up on Senator Woo’s questions, you just calculate how much it’s going to cost per tonne, and you would know in advance — assuming that we reach a certain amount every year — so you make a calculation.
In your information data bank, do you have information about the real cost of energy within the operation of a farm? That will include the cost of the commodity. For example, if the gas price was $36 per cubic metre in October of last year, but it is $26 per cubic metre this year, this should translate into the energy costs — for the farmer — being lower, despite the increase in the charge.
Do you have that data available?
Mr. Ammar: We don’t have that data right now, but, again, I think we can provide it.
You’re right; the price of natural gas, specifically, is very volatile during the year, and the share of the carbon price on that will be volatile, too. It could be 8% this month, or it could be less — like 5% or 2% — later. It depends on monthly frequency.
Of course, for annual frequency, we should also consider the rise in the carbon price itself in the calculation. But yes, the share will change, and I think we can investigate that part to give you some answers about what the share of carbon will be relative to the price of natural gas and propane.
Senator Dalphond: Thank you.
Senator Woo: If you are looking at the volatility of farm costs, and focusing specifically on natural gas, perhaps you can also provide some advice regarding which parts of farm costs are the most volatile. If what you told us is correct — and I have no reason to doubt that it is — natural gas costs are a very small fraction of the total cost, and the volatility in natural gas prices, however volatile they may be, is not as material, in my estimation, as the many other costs that farms have to deal with. If you have some sense of where the real volatility comes from, that would be interesting.
Mr. Giroux: I’m not sure we have that information because that would require us to look at the entirety of the operating costs of farming. For example, fertilizer would probably be a significant cost input in many farm operations, and that is probably subject to volatility as well.
Senator Woo: Thank you.
Mr. Ammar: To add to your comment, Yves said earlier that the fuel expenses represent less than 1% of the total price, but if you look at it by activity, that should vary according to the farm type. For example, for grain, it is even less at around 0.4% relative to the total operating expenses. However, for greenhouses, for example, it’s 10 times that because they use a lot of that fuel. I’m talking about the average for Canada as it’s shared.
Of course, we should consider the size of the farm. We don’t have such analysis, and we don’t have an idea about how much the share will be depending on the farm size.
Senator Woo: Thank you.
The Chair: I think we’re sending you away with some marching orders, if you don’t mind that. We are looking for some further information. Thank you for that. I have no further questions, or senators who wish to ask questions. Thank you very much to our witnesses today: Mr. Giroux and Mr. Ammar. It’s great to have you here again.
We will now proceed to our second panel on Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act. For the second panel, we welcome, in person, Dr. Nicholas Rivers, Associate Professor, Public and International Affairs, Faculty of Social Sciences, University of Ottawa. By video conference, from the National Farmers Union, we have Mr. Murray Jowett, Climate Policy Coordinator; and from the Agricultural Producers Association of Saskatchewan, we have Mr. Ian Boxall, President. Welcome to the three of you.
We will hear opening remarks from Dr. Rivers, Mr. Jowett and Mr. Boxall. You will each have five minutes. With that, the floor is yours, Dr. Rivers.
Nicholas Rivers, Associate Professor, Public and International Affairs, Faculty of Social Sciences, University of Ottawa, as an individual: Thank you for inviting me to the committee. I really enjoyed the last discussion, so I hope for another fruitful discussion.
In my opening remarks, I will first make a few points about Canada’s carbon pricing policy in general, and then share my perspective on Bill C-234, which proposes an exemption from the carbon price on fuels used for drying grain and for heating and cooling agricultural buildings.
Economists are highly supportive of using a carbon price, such as the one implemented in Canada, to reduce greenhouse gas emissions. Carbon pricing is considered the least costly way to reduce emissions because it offers emitters significant flexibility in choosing the best way to reduce emissions that is tailored to their circumstances.
Carbon pricing works best when all greenhouse gas emissions are subject to the same carbon price. Canada has generally followed this prescription in setting up its own carbon price and in requiring carbon pricing in the provinces. This policy design ensures that all emitters of greenhouse gases face an incentive to curtail their emissions.
Canada is not the only country that has implemented a carbon price. The World Bank reports that about one quarter of emissions worldwide is covered by a carbon price. The increasing international adoption of carbon pricing helps to lower emissions and to level the international playing field.
However, while the application of carbon pricing worldwide continues to increase, many of our trading partners, including the U.S., have not imposed carbon pricing on their emissions. This raises concerns that producers of traded goods in Canada may become less competitive or less profitable relative to producers in other countries without a carbon price.
The Canadian carbon pricing policy offers rebates to large industrial emitters of traded goods, like cement or steel manufacturers, in order to counteract this competitiveness concern. Rebates to large emitters are based on output, like the amount of steel produced, while the carbon price is levied on emissions. This policy design ensures that large industrial emitters continue to face an incentive to reduce emissions, but are not placed at a disadvantage when competing internationally.
However, many farms are not covered by industrial carbon pricing rebates. There are some exemptions to the carbon price for fuels used on farms, but these exemptions currently do not apply to fuel used for grain drying or for heating buildings. This means that grain farmers face the full carbon price on fuel used for grain drying, and do not receive output-based rebates. However, like cement and steel, grains are an internationally traded commodity, and there are legitimate concerns that the carbon price puts Canadian grain farmers at a disadvantage relative to their international peers.
One way to address this concern would be to exempt fuel used for grain drying from the carbon price, as proposed in Bill C-234. This approach has the advantage of being simple and ensuring international competitiveness of Canadian grain farmers as the carbon price continues to rise. However, exemptions to the carbon price also mean that grain farmers will no longer face incentives to reduce greenhouse gas emissions. As Canada strives to hit net-zero emissions within a generation, it will be important to ensure that all emitters have strong incentives to reduce emissions. Exemptions to the carbon price will increase emissions and work against our greenhouse gas goals.
While grain drying produces a relatively small amount of emissions overall, relative to the Canadian total — such that the proposed exemption will not significantly affect our country’s overall emissions — I do worry about the precedent it would set. The strength of carbon pricing is that it provides an incentive for all emitters to reduce emissions. Exemptions from the carbon price weaken the system. If grain drying is exempt from the carbon price, other groups will be emboldened to seek exemptions from the carbon price as well, further weakening the system.
An alternative approach to exemptions would be a rebating system, similar to the system used for large industrial emitters. Under a rebating system, farm fuel would continue to be subject to the carbon price. However, revenue from the carbon price would be rebated back to grain producers in proportion to the amount of grain produced. Like the existing rebates for large industrial emitters, this system would continue to provide farmers with an incentive to reduce emissions from grain drying and other on-farm activities, but would also ensure that Canadian grain farmers are not placed at a competitive disadvantage in international markets.
This approach would be somewhat more complex than an exemption, but it would have the benefits of continuing to provide incentives for greenhouse gas reductions, maintaining international competitiveness and preserving the integrity of the existing carbon pricing system. For these reasons, I think it is a superior approach compared to the exemption proposed in Bill C-234. Thank you very much.
Murray Jowett, Climate Policy Coordinator, National Farmers Union: Thank you so much for your time, and thanks for extending the invitation to the National Farmers Union, or NFU, to contribute to the proceedings today. I agree with Dr. Rivers that the conversation today has been really great and stimulating so far.
I’ve been an active associate member of the NFU since 2017. The NFU is a direct-membership, farmer-led organization founded by an act of Parliament in 1969, with roots going back more than a century. The NFU represents thousands of farm families and farm workers from coast to coast. NFU policy positions are crafted democratically through discussions and debates among members.
In 2019, during a notoriously wet harvest, many of our members were forced to run grain dryers for long periods, and the cost of fuelling those dryers became immense. For this reason, the NFU passed a policy resolution in 2019, requesting that the federal government provide a rebate of the carbon levy on farm fuel used for grain drying. We were puzzled by the distinction between grain dryer fuel and tractor fuel in the Greenhouse Gas Pollution Pricing Act, which I’ll now refer to as “the pollution pricing act.”
Subsequent to the passage of this NFU resolution, Bill C-8 introduced a tax credit aimed at returning carbon levy proceeds to farming businesses in provinces where the federal backstop of the pollution pricing act applies: Alberta, Saskatchewan, Manitoba and Ontario. The NFU viewed this new tax credit favourably as it helped mitigate losses for farmers while preserving the pricing signal on farm heating fuel.
Our concern regarding Bill C-234 lies in its intention to completely exempt farm heating fuels from the pollution pricing act. That eliminates the pricing signal it provides. Pollution pricing signals are crucial, incentivizing producers to adopt practices that reduce emissions when heating barns and drying grain. The current system, as adjusted by Bill C-8, strikes a better balance by upholding the pollution pricing signal without jeopardizing food production. That’s why we urge the committee to consider the pressing urgency of addressing climate change in its evaluation of the proposed changes in Bill C-234.
The challenge with Bill C-234 is that a complete exemption fails to promote clean technology and low-emission alternatives. While an exemption might have made sense when the pollution pricing act was initially drafted, it becomes much less appropriate as cleaner alternatives become available.
Given the growing body of climate science emphasizing the urgency of addressing the catastrophic impacts of climate change, we believe the following points should be considered in the context of Canadian agriculture and Bill C-234.
First, we must ensure an ample supply of food. The pollution pricing act recognized this already by exempting most farm-used fuels from pollution pricing. Second, reducing greenhouse gas pollution should be a top priority, and there are no simple, cost‑free solutions to achieve this goal. Pollution price signals are essential for all participants in a market-based economy, including farmers. Third, carbon pricing should be seen as a remedy and not the problem as it relates to food security and inflation in the long-term view of climate change.
That is why the NFU recommends that the government continue assisting farmers in transitioning to more efficient grain dryers and livestock facilities by providing incentives and continuing to use price signals.
Regarding Bill C-234, we propose that the committee amend it to include a sunset clause for the exemption that treats grain drying and barn heating fuel as farm-used fuel. This sunset period would allow time for clean grain drying technologies to mature, and provide farmers with the opportunity to retrofit farm building insulation and heating systems, reducing greenhouse gas emissions from their operations.
Thank you. The NFU welcomes questions.
The Chair: Thank you very much. We will now hear from Mr. Boxall.
Ian Boxall, President, Agricultural Producers Association of Saskatchewan: Good morning, Mr. Chair and members of the committee. I’m here today as the President of the Agricultural Producers Association of Saskatchewan, or APAS, and a passionate farmer from Tisdale in northeast Saskatchewan.
I come before you today to offer insights and perspectives from those who are not just impacted by the current carbon pricing policy, but are also at the forefront of environmental protection for the lands and waterways we care for. Amidst the discussions surrounding the merits of Bill C-234, I aim to provide you with unique insights and perspectives that you may not have encountered to date.
Farmers have been addressing climate change long before the term even existed, and agriculture was leading the charge in CO2 reduction before carbon reduction became a public policy priority. Saskatchewan farmers gifted Canada an environmental gift when we transitioned to zero-till farming. We did this without government direction, driven by our belief that it was both environmentally and economically prudent for our farms. However, this gift is often overlooked and minimized today because it’s considered common practice. Have we truly quantified the economic value of this gift in contributing to Canada’s environmental efforts? And how does its value compare to the relief that Bill C-234 could provide to farmers?
Most farmers have already transitioned from coal boilers for heating to cleaner alternatives like natural gas and blended fuels with ethanol or biodiesel. But there’s a significant hurdle: the lack of infrastructure support for newer, greener energy sources. While technologies like hydrogen, solar, wind, biomass and geothermal hold promise, they remain limited in their application due to our unique environmental conditions and our vast geography.
These technologies will undoubtedly improve over time, but for now, they can’t match the reliability of existing sources for heating barns during extreme winter temperatures or grain drying during a wet harvest season.
Nonetheless, we — farmers — are no strangers to innovation. We are committed to adapting and innovating as necessary to contribute to a greener future.
It would be a dream come true if we did not have to dry a single bushel of grain, rendering the taxation of energy used for that purpose a non-issue. Sadly, that is not our reality. When we must dry large volumes of grain, it’s often a reflection that the harvest conditions are not in our favour. When that happens, it adds stress, anxiety and a financial burden during an already trying time for farmers.
I’m confident that this was an unintended consequence of the carbon pricing policy which Bill C-234 aims to rectify.
With appropriate government support that facilitates the transition to cleaner energy sources, farmers across Saskatchewan will continue to improve our ecological responsibility while ensuring our financial sustainability. Farmers are deeply committed to environmental stewardship. Why? We want our farms to be better, more productive and more sustainable for the generations that follow us. That is the legacy that truly matters to me, my neighbours and farmers across Canada. That is why we are tirelessly searching for solutions to enhance our sustainability.
However, let us not be bound by policies that reduce our capacity to invest in the very solutions you want us to pursue. The shift to cleaner energy sources can be a costly and gradual process, and it is unreasonable to penalize us for our dependence on fossil fuels at this stage.
In closing, I want to express my gratitude for this opportunity, Mr. Chair. I eagerly await the ensuing discussion. Thank you.
The Chair: Thank you, Mr. Boxall, and thank you to our other witnesses as well.
We will proceed to questions. As I mentioned earlier, I would ask witnesses and members in the room to please refrain from leaning in too close to the microphone, as it could affect the sound quality and provide feedback to our staff in the room.
As has been our previous practice, we will each have five minutes for questions, and then move on to a second and third round if necessary. The five minutes include questions and answers, so I would ask that questions and answers be concise.
I will take the prerogative to ask the first question.
Mr. Jowett, how many members are there in the NFU? What is the average size of your member farms?
Mr. Jowett: I don’t have that information, but I can get it and provide it to the committee.
The Chair: I think you noted the need for a sunset clause. Bill C-234 does have an eight-year sunset clause. Are you aware of that?
Mr. Jowett: What is the current sunset clause for? Is it for the entire —
The Chair: Bill C-234 has an eight-year sunset clause when it would be revisited. You were saying it should be amended to include that.
Mr. Jowett: Then I was mistaken.
The Chair: Finally, did you say that your members are using cleaner alternatives for grain drying? Perhaps you had noted that. If they are, what are those cleaner alternatives?
Mr. Jowett: I can get that information for you. I don’t know specifically because it varies from farm to farm, and we are represented across the country. However, we do have a membership that is largely quite committed to seeking alternatives for all of the procedures on the farm.
The Chair: Thank you.
Senator Simons: Dr. Rivers, I want to start with you.
Grain is an internationally traded commodity, and we don’t want to put our farmers at a competitive disadvantage. I thought the connection you drew to a heavy industry like cement production was very enlightening.
The bill before us isn’t a rebate bill. There is a finite amount that we can do as a Senate committee to say, “We have a better idea. Let’s do it this way instead.” In light of the discussion we had earlier with the Parliamentary Budget Officer — to which you were privy — he and his team noted that grain drying and oilseed drying make up a smaller percentage, even in Alberta, and especially in Ontario, of the total amount.
Do you think we could get halfway to doing what you propose if we rescope the bill to focus specifically on grain and oilseed drying — for which there are very few alternative technologies — and take out the exemption for heating of buildings, as there are many more options to heat a building than to dry grain? It would focus us more on this issue: having our farmers not be at a competitive disadvantage.
Mr. Rivers: It’s a good question.
I would say two things. First of all, my general point is about exemptions writ large. We should steer as far away from those as possible. The whole point of the carbon pricing policy is to apply uniform signals. You put me in a slightly uncomfortable position when you say we can’t do something as an alternative to this bill, but I would say there are better alternatives to this bill.
Second, I’m not an expert in agricultural technologies, but I have seen dramatic progress or changes in the landscape of technologies within sectors that we used to think of as hard to abate. Cement and steel are two good examples where we thought those sectors were using the best available technology, and that there were not a lot of low-cost options for greenhouse gas emissions reduction — and that has changed significantly in the last few years. It is the same thing with transport. We thought there wouldn’t be a way to easily get greenhouse gas emissions out of passenger transport, and we are really seeing the landscape shift under our feet.
The landscape shifts, in part, because of financial incentives. If you take away that financial incentive, you take away part of the motivation for innovators to find ways to reduce greenhouse gas emissions. By having an exemption, we are partly shooting ourselves in the foot. We will have less innovation in that sector.
Senator Simons: I agree that a rebate would be a better system. The problem is that the bill comes to us as it is. To write a new bill in committee is beyond the scope of our powers.
If I still have time, I want to put the same question to our other two guests. We have had lots of testimony that grain drying, in particular, is very tricky without those high-intensity gas dryers. But heating buildings could be done in all kinds of different ways.
What would you imagine if we were to scope this bill so that we take out greenhouses — which already have the 80% rebate — and we take out the exemption for heating barns, and leave it narrowly focused on grain drying for which there is a technological gap? That is something we could do, hypothetically, as opposed to writing the bill differently to make it about rebates.
This question is for the representatives of APAS and the National Farmers Union.
Mr. Boxall: My question is this: What are those alternatives? At 40 below in Saskatchewan, with a barn full of hogs or other livestock, what’s the alternative?
Senator Simons: There are other ways to heat buildings in the sense that you can use solar power, geothermal or heat pumps. I’m not saying those things are easy; I’m saying that is typically a less technical question to solve than the grain drying question.
Mr. Boxall: I absolutely agree that we will get there. We aren’t there yet. Those technologies are not ready to do what we need done in the cold of Saskatchewan winter.
Let’s be honest: The price on carbon is not an incentive to change; it’s a penalty.
There are some programs out there that have incentives to make changes to the way we dry our grain or the way we heat our barns, but they, of scope, are not nearly big enough to accommodate what needs to be done to make mass change. I think that has been recognized.
But let’s be honest: The price on carbon is not an incentive for us to change what we do because there currently is not the technology available to change what we are currently doing.
Mr. Jowett: Thanks. That’s a very interesting idea, and I think I would leave that to the people who are crafting this bill to figure out the specifics about that.
If we have an opportunity to stimulate innovation on both of these fronts, that seems like an opportunity — alternatives come from innovation, and innovation won’t come if it is not stimulated by something like a price signal.
Senator Simons: Thank you very much, everybody.
Senator Oh: My question is for all the witnesses.
The Greenhouse Gas Pollution Pricing Act currently exempts both diesel fuels and gasoline for agricultural purposes, and yet, you are suggesting that propane and natural gas should not be exempted when these are cleaner fuels than diesel and gasoline.
To me, this seems to be inconsistent, and I’m wondering if you could explain why we would exempt the fuels that emit a greater measure of GHGs, and refuse to exempt the fuels that emit less GHGs.
Mr. Rivers: If I were designing the system from scratch, I wouldn’t provide incentives. I would design this using rebates to address the kind of concerns that were raised around competitiveness or the lack of options to keep farmers whole, while still continuing to provide an incentive for greenhouse gas reduction.
I am of the view that all of these exemptions are problematic, but let me raise another related point. My understanding is that grain drying happens both on the farm and through contract dryers, so an exemption to on-farm propane and natural gas use is going to shift the competitiveness of drying grain on-farm versus drying through contract dryers. It will create a set of winners — farmers who dry their grain on-farm — and people who will suffer from this policy, which are the contract dryers. I think we want to have our eyes open in designing this policy.
The Chair: Mr. Boxall, do you have a comment?
Mr. Boxall: There are no alternatives currently, and at the time when we need to dry grain — like we did in 2019 — we are already facing huge stress and other financial burdens that come with a tough fall, and this just adds one more thing.
Our numbers show that the price on carbon is costing Saskatchewan farmers $5.17 an acre — 33% of which is for grain drying, or $1.64. We still pay a huge amount of carbon tax based on our numbers, and we have been tracking them since 2019.
I think the exemption is something that is required to keep us competitive on the world stage.
Mr. Jowett: The tax credit coming from Bill C-8, I think, already went some distance in compensating farmers for the carbon levy on these cleaner fuels, so I think we have to understand that there has already been some relief provided in that way — these are still carbon-intensive fuels, and they don’t get a free ride.
Senator Oh: I have one more question for the National Farmers Union. The Agriculture Carbon Alliance consists of 15 national farm organizations that collectively represent 190,000 Canadian farm businesses. Can you tell me how many members the National Farmers Union currently has?
Mr. Jowett: As I previously mentioned, I don’t have those numbers on hand, but I can provide them.
Senator Oh: Yes, please get back to us with the number. Thank you.
Senator Woo: Thank you, witnesses.
First, for Dr. Rivers, I understand the logic of your proposed rebate mechanism — output-based — which is just a variation of the current rebate system. How much more advantage will it provide to what we are already doing — because the rebate does go to farms, using size as a proxy, and that’s not a bad proxy for export orientation?
Can you talk a little bit more about how much more benefit we would get from something that is more directed at output?
Mr. Rivers: This is a good opportunity to clarify.
The current system, as far as I understand, is a rebate that’s based on the size of the farm in dollars, so it’s a refundable tax credit, and every — I can’t remember exactly — $1,000 of this sort of amount is rebated.
This treats all farms identically. Farms that are grain drying get a rebate, and farms that are not grain drying get a rebate. The way you can think about this is that the more carbon-intensive farms — the farms that are paying more in the carbon price — are contributing more to this pool of money that gets rebated back equally to all farms.
Perhaps a way to rejig this rebate in order to preserve international competitiveness — if that’s what you want to do — would be to reserve the funds that are raised from grain drying to go back to grain farmers so as to make sure these grain farmers remain internationally competitive. If we’re effectively taking money from one pot and subsidizing farms, for example, that are not even trading internationally, we are diluting the pool of money we have available.
As you pointed out earlier, this is not money that is coming out of the Canadian economy; it’s money that is moving from one producer to another. But if we are trying to preserve agricultural competitiveness, maybe a sensible, small reform would be to base these rebates on the type of farm. That’s what industrial carbon rebates do. There are different benchmarks for steel, concrete and products within those categories.
Senator Woo: Thank you. So it’s targeting without removing the price incentive.
Mr. Jowett, you raised the question of a sunset clause, and it was a bit unclear as to your thinking around that because it is your own organization that proposed a rebate, which appeared in Bill C-8. If we have both a temporary period for exemptions — where there are exemptions on the use of natural gas and propane — plus a rebate, wouldn’t there be some double-dipping, if I can put it that way, for farms?
Mr. Jowett: Yes, I suppose you’re right. Actually, I’m not certain how those two would interact.
Senator Woo: If I follow the logic of your argument, you believe in price signals. You believe there needs to be incentives both for farmers and for innovators to come up with new technologies, and that’s partly why there needs to be a price and maybe a sunset clause. Would you advocate a sunset clause for the use of all on-farm fuels, following the same logic that you gave us? I’m talking about gasoline and diesel.
Mr. Jowett: The impending and oncoming freight train of an unfolding climate is, sort of, the sunset clause of our use on fossil fuels in agriculture. At some point, we’re going to have to figure something out for that.
Senator Woo: I take your point is that we have to move away from fossil fuels on farms more broadly. To the extent that we are going to have any exemptions, these should be temporary at best, and if they do apply to natural gas and propane, they could also apply to diesel and gasoline.
Mr. Jowett: Yes, but the NFU has come nowhere close to discussing what that would look like. It is beyond the scope of this current bill.
Senator Woo: Thank you.
Senator Dalphond: Here is some precision for the second witness, Mr. Jowett. Mr. Glenn Wright — who I think was a member of the National Farmers Union — appeared at the House of Commons Agriculture and Agri-Food Committee in October 2022. I understand this is the same presentation and the same suggestion, at the end, for a kind of transition period. I also understand you didn’t know that after your presentation — when clause-by-clause consideration was done for the study of that bill — they added the provision that provides exemptions for eight years, but it goes much further than what you had proposed because it can be extended by a resolution from both houses for another eight years.
My question is for Mr. Rivers. If we focus on competitiveness, what’s the logic of exempting the heating of barns and other buildings on farms that are used to produce milk, eggs and chickens — which are supply-managed systems where their competitiveness in not an issue? They are not price takers, but price fixers. Is the logic to exempt this heating on farms from the tax if we think of competitiveness?
Mr. Rivers: We need Mr. Giroux back. I’m not sure what proportion —
Senator Dalphond: I’m not asking about the proportion.
Mr. Rivers: There are greenhouse producers as well in that building heating group, which are exposed to international trade. I think it’s a great point that a lot of the building heating is for products that we wouldn’t expect to have concerns about regarding international competitiveness. I don’t have the numbers in front of me, but I think that’s an excellent point to raise.
Senator Dalphond: I understand from your answer that this bill is maybe drafted too broadly, depending on the aim. If the aim is to protect competitiveness, with the way it is drafted, we are achieving far more than that.
Mr. Rivers: I think that’s right. My understanding is that this bill germinated out of concerns around grain drying, and maybe expanded beyond that initial concern. Economically, we would be concerned about the sectors that are unable to pass the costs on to consumers. For grain producers that see a world price of corn, and have to sell at that price, they have to take a hit somewhere. That is not the case for supply-managed products.
Senator Dalphond: If I understand properly, you’re suggesting that maybe there should be rebate systems more specifically designed to target grain drying — if these are the options we favour in order to protect competitiveness — but that’s not what we are trying to do here. It suffers from the same weakness as the current Bill C-8 systems. Rebates go to those who don’t even use propane, and this bill proposes that rebates go to those who are not even in need of that.
Mr. Rivers: I think that’s right.
Senator Dalphond: Thank you.
The Chair: I have a question for Mr. Boxall. In your opinion, Mr. Boxall, being the farmer of the three witnesses, can Canadian farmers be competitive internationally if this bill is not passed? My second question is this: If we look at rebates — over what we’re talking about — can rebates do it for you as a farmer?
Mr. Boxall: It absolutely puts us at a disadvantage. There is a lot of talk here today about rebates, and this bill is looking at the cost of heating barns and grain drying. We haven’t touched on the $40 million that Saskatchewan producers pay in carbon tax on the rail freight — which is passed down — and yet for the rail companies, there is zero incentive to make any change because that cost is passed to us as well.
We can talk about rebates and all of that, but those are thousands of dollars when we are paying tens of thousands of dollars. It is not equitable. There are no alternatives to what we are currently doing that can be rolled out on the mass scale that we require, and it absolutely puts us at a disadvantage on the world stage.
The Chair: Thank you, Mr. Boxall. We will be moving on to the second round.
Senator Simons: Mr. Boxall, you made an excellent point in your opening statement that farmers don’t necessarily get the economic credit or, frankly, the public relations credit for the work they have done in carbon sequestration by adopting no-till, especially on the Prairies. You may know that our committee is in the midst of a big study on soil health that is looking at the different ways that farming helps to sequester carbon, and we will be moving on — after we have dealt with this bill — to witnesses who will be talking about creating carbon markets.
I’m straying outside the text of this bill in this conversation, but I want to ask you — and also Professor Rivers — if you could get carbon credits for regenerative agricultural techniques, could you imagine that we could invent a system, at some point, where you could use those to trade off some of the carbon tax that you have to pay?
Mr. Boxall: I think that’s possible. What that looks like is always a question. How much money do the regulators get in all of this? It’s the same as a rebate program. How much money does it take of the carbon tax — that is paid — just to fund the program, let alone have it rebated back to the people it needs to go to in order to incentivize them to make changes? That’s always my fear with any of those things. How much is eaten up in the process? I believe that over time if there is a carbon pricing system set up, or we trade in these, we can offset some of what we pay based on that.
Senator Simons: It seems to me that in the long term, that’s the logical and holistic way to look at this so that — in the carbon cycle — farmers get credit for the work they are doing, as environmental stewards, to offset the carbon that they paid for their production. I don’t know, Dr. Rivers, if you have thought about this in any way.
Mr. Rivers: I think this is a big topic. The view I have is that offset markets are great in theory and really hard to design well in practice.
Senator Simons: You don’t want them to be like medieval indulgences.
Mr. Rivers: We’ve seen a lot of failures in implementation, and my view is that the government is better off supporting farmers directly in adopting innovative soil management or carbon management practices — and not tying it to an offset market, which can dilute our industrial carbon pricing system.
Senator Woo: Dr. Rivers, you have picked up, as all of us have picked up, that one of the central questions in thinking about this bill is regarding the technological frontier. How close are we to the frontier, and how does the frontier move out so that there is space for the farmers to get closer to the frontier? I know you’re not an expert on farm machinery and drying crops, but you partly work on climate change, and you have worked on other sectors that presumably deal with the same problem — some of which also have conditions where it’s hard to decarbonize. Can you talk about how the technological frontier works, and what can we expect — as a potential example — regarding what might happen in the grain drying and farm building heating sector?
Mr. Rivers: I will certainly defer to Mr. Boxall on technological specifics.
Let me start by saying that Canada has promised to get to zero emissions in a generation. This means that for any source of emissions, we have to eliminate it in 25 years. There can’t be significant residual emissions in that claim. We have to figure out ways to decarbonize everything.
We have seen writ large, across the economy, enormous technological progress in greenhouse gas mitigation technology. We see some of it in our day-to-day lives: Electric cars are becoming competitive and moving quickly. We have seen renewables, like solar and wind, fall in cost by 90% over the last decade. We’ve seen it in sectors that we used to think were basically impossible to decarbonize, like cement and steel. For those sectors, we’ve seen solutions that are being proposed and being implemented, and demonstration projects that are now allowing for low-carbon production. We’ve seen proposals for carbon capture and storage and oil and gas developments that would allow that sector to produce oil and gas with a much lower carbon footprint. Throughout the economy, as we start pushing these sectors to find ways to reduce their emissions, we see innovators and actors in those sectors respond.
Again, I’m not an expert on grain drying, but I think an alternative would be low-carbon heat. Many industrial processes require low-carbon heat, or heat that could be delivered in low‑carbon ways. Increasingly, there are alternatives in that space, whether it’s biofuels; nascent technologies like clean hydrogen; or innovative uses of electricity.
As Mr. Boxall says, these are not things that we can deploy tomorrow, but there are technologies that are moving quickly, and will move quicker with a stronger incentive for adoption.
Senator Woo: Thank you.
Senator Dalphond: Thank you. My question is for Mr. Boxall. I would like to know more about the situation in Saskatchewan. The Ontario government, for example, is sponsoring projects involving new technologies for drying grain that reduce energy consumption by 30%. Are similar programs being offered by the Saskatchewan government?
Mr. Boxall: Not that I’m aware of.
Senator Dalphond: I understand that the federal government has also launched many programs to have greener agriculture. Do you have any numbers about how many of your members took advantage of these programs? We’re told that these programs have been oversubscribed, and that people are refused because there is so much interest in the programs. Is this something that also concerns your associations?
Mr. Boxall: I think all the clean tech programs are wonderful. They’re all good programs. The problem is the scale, as I mentioned earlier. The uptake is done within a few months of the program being rolled out, and there just isn’t enough.
I know of one operation in Saskatchewan that received some federal money to go to a cleaner drying system last year. That’s one — that doesn’t quite cut it, right? Yes, I appreciate the government’s clean tech programs for agriculture, but they just aren’t to scale.
Senator Dalphond: If you were to suggest something to the government, would you be in favour of substantially increasing these types of programs?
Mr. Boxall: Sure. Farmers are innovators. We’ve always been innovators. We’ll make change when it works for the sustainability of our farms, both environmentally and economically.
Senator Dalphond: I know that; I come from the countryside — from farms. I have seen that evolution around me over my 60 years or so. Don’t you think that would be a better option than just getting a tax break for the time being?
Mr. Boxall: Possibly, but is the money available to roll into those programs that would be required to make mass change?
Senator Dalphond: Maybe we should use the carbon levy to finance this type of innovation instead of trying to redistribute it to everybody.
Mr. Boxall: Sure. That could possibly work. We want to get away from fossil fuel use. What is going to power my tractor or my combine for 18 hours a day in the field in the spring? What is going to power the locomotive for the products that are grown in Saskatchewan — in the middle of the country — to get it to port?
We need to be realistic about our expectations. Improvements can be made on all fronts, but we need to be realistic about our expectations. Sometimes, I wonder if we’ve missed that mark a bit.
Senator Dalphond: Yes, but I understand that combines and tractors are exempt.
Mr. Boxall: Yes, the farm fuel is exempt, but Professor Rivers is talking about us getting to carbon zero. What is powering everything else on my farm? Maybe there is innovation to power my grain dryer. Maybe there is innovation to heat my shop or my barn. But what is powering my equipment? We aren’t there yet, and we’re a long way from being there.
Senator Dalphond: Thank you, Mr. Boxall.
Senator Petitclerc: Thank you to our witnesses today. Thank you to my colleagues for the excellent questions. We’ve touched on some technical and specific areas. I want Professor Rivers to take a step back, though.
You talked about the deadline that we have and the urgency. I was reading a document from the Fraser Institute in 2019, I think. When it comes to creating an environment that will nurture and encourage engagement to change not only technology but also behaviour — wanting to change — I think I read somewhere that exemptions may not be the best way to create that sort of environment. It’s an environment where everybody wants to push this transition that perhaps doesn’t exist now, but it is something that we’re aiming toward.
Am I correct? Did I read that somewhere properly?
Mr. Rivers: Maybe you have to clarify the question a bit for me. I haven’t read this report.
Senator Petitclerc: I’m thinking and talking aloud here.
What is the best approach to make sure that everybody engages in finding the transition to better alternatives? Is it exemption? I think I read somewhere that exemption may not provide that environment as well as other approaches.
Mr. Rivers: That’s a good question. Let me start by saying this is a journey that we’ve never taken before: reducing emissions to zero or to net zero. It is a transition that is faster and more ambitious than any we’ve undertaken as a society before. To presume that we know what we need at the outset would be naive. We’re learning as we go.
What we do know is that if we’re going to hit these targets, we need remarkably broad changes in every system. I think we need both technological and behavioural change. This is an all-hands-on-deck kind of challenge.
In terms of the exemption, my gut feeling would be that you’re right. When we exempt people from a program that is meant to encourage them to reduce their emissions, that’s going to lead to more emissions and less ambition in terms of cutting emissions. That’s where the economic literature that I’m familiar with would come from. However, it’s also clear that this is not a straightforward economic issue. Getting people to politically buy into this decarbonization challenge is maybe even more fundamental than the behaviour on technological change. This is a fine balancing act, and we don’t quite know the answer yet.
Again, I think my discipline would say that this greenhouse gas policy does provide a strong incentive to reduce emissions. Exemptions will work against that, but there are a lot of things to consider as we move forward as a society in this challenge.
Senator Petitclerc: Thank you. I appreciate that.
Senator Oh: I want to follow up on Senator Petitclerc’s question. I want to expand on the larger aspects.
We are working hard to save the world. I just came back from a net-zero forum in Vietnam. What about the other side of the world? We are working so hard, and climate change is very costly for economics. How far do we have to go? The other countries south of us have bigger economic aspects. Are they doing what we are doing? Are we all chipping in to save the world on climate change?
Mr. Rivers: That’s a good question.
This is a difficult problem because the whole world has to work together, and the whole world doesn’t work together all that well. This only works if everyone cuts emissions. As we know — we’ve heard it lots of times in the media — if Canada reduces emissions to zero, and no one else does anything, it doesn’t make a difference.
But if countries like Canada give up and don’t reduce emissions, we can basically rest assured that the rest of the world will not do anything. This is a trust game. It’s a game where we all have to pitch in. If some of us don’t pitch in, the trust dissipates.
Canada is not at the forefront. We’re not at the back. We’re trying to figure out how to reduce emissions. Other countries are well ahead of us. There are certainly countries that are behind us. The challenge here is to keep the international momentum in the absence of any binding international agreement that we could never possibly have. To me, that comes from authentic efforts to reduce emissions, and, without those authentic efforts, we shoot in the foot any chance of having any international momentum on this.
Senator Oh: Thank you.
The Chair: Mr. Boxall, I want to follow up on the question and comment from Senator Dalphond. He talked about the idea of maybe enhancing or adding to programs that are already in existence, or adding programs around the development of clean tech and other alternatives.
You’ve applied and probably accessed some of the programs in the past. When do you get your dollars? How long does it take to get your dollars?
Mr. Boxall: I’ve never applied, actually. We bought a new dryer a year before the programs rolled out, so they weren’t available for us to apply for that.
I’ve heard that it takes months and months, though. I’ve also heard it even takes months and months just to get in contact with people to help with the application because it’s pretty complex. So it does take some time.
I agree that we’re talking about ag exemption here, and some of the conversation has gone to the world stage, and this and that. Farmers are innovators, to Professor Rivers’s comments. We will never quit innovating, whether we are taxed or have a price on carbon. The price on carbon deters us to have the money to invest. That’s part of the issue that we need to remember.
The Chair: That was my next question. Bill C-234 speaks to the fact that it provides investment money or capital to farmers. Otherwise, do many farmers have the capital upfront to cover the cost of investing in cleaner equipment and developing such farm activities?
Mr. Boxall: We will always innovate; we always have. For generations, farmers have innovated, but the $5 we are paying in the carbon tax is absolutely taking away from our ability to invest in technology.
The Chair: Thank you.
Senator Dalphond: To follow up on the questions from our chair and the answer you provided, you said that you bought a new dryer last year, which I understand is a substantial investment. Did it reduce your energy costs?
Mr. Boxall: It did. We had an old dryer that my dad had bought in 1974, and it was time that we upgraded to something more efficient. We did it three years ago; I think this has been the third fall we’ve used it.
I wanted to put it on natural gas, but the cost to get natural gas to run my grain dryer on my farm was $580,000 just to get the line there. So we are running ours on propane. We have no alternative. At $580,000, I can buy 35 years of propane for that money.
There is also some deterrent in getting the best solution or the most environmentally friendly solution to run the dryer. There is some cost within the infrastructure system to get it to us. An issue that comes into play in any jurisdiction is the cost to get the best there —
Senator Dalphond: To get to the gas supplier or the electricity line?
Mr. Boxall: To get natural gas to my farm to run my grain dryer was going to be $580,000 just to get the line in — so we went with propane. We couldn’t afford natural gas. It comes down to economics as well. Yes, we bought a more efficient dryer that is costing us cents to run. It’s efficient, but I would have loved to have it on natural gas. Currently, that is our best alternative. However, I can’t afford to get it there.
Senator Dalphond: Does the Province of Saskatchewan offer programs to assist farmers to connect to existing public utilities?
Mr. Boxall: Not that I’ve seen. There wasn’t when I applied for that one.
Senator Dalphond: You applied for that, and you were told there are no programs?
Mr. Boxall: I applied to get the gas line to my farm, and the quote that came back was $580,000.
Senator Dalphond: Thank you very much for that information.
I understand that with the new dryer, you are saving on costs compared to past operations.
Mr. Boxall: Absolutely.
Senator Dalphond: Substantially?
Mr. Boxall: Substantially.
Senator Dalphond: You will save 30% or less?
Mr. Boxall: I wouldn’t say it’s that. I dry more bushels in less time, but this summer, in order to fill my tanks of propane to get ready for drying, the carbon tax was 17% of the bill. We can talk about the cost of propane, but 17% is just on the tax. Then, add the GST on top of that.
Senator Dalphond: Thank you.
The Chair: Mr. Boxall, would you mind sharing the cost of that dryer?
Mr. Boxall: Sure. The dryer itself — just the bare dryer, and not set up — was $200,000. When all was said and done, the system — in order to get the grain away from the dryer and to the dryer, et cetera — was half a million dollars.
The Chair: Thank you very much.
Senator Woo: Mr. Boxall, you raised a really important point about the ancillary need for infrastructure support to get lower-carbon fuels to farms. I hope we take note of that in our report.
I want to ask you about the use of 1970s-era dryers on farms. Are there many other farms that you know of that are also using — as you did until a few years ago — 1970s-era, low-efficiency dryers?
Mr. Boxall: I don’t think it’s common anymore. I think we have seen a shift where a grain dryer is an impact of climate change. We use it when we need to because we’ve seen some shift there.
Due to the concept around grain dryers, including the efficiency of them and the fact that they can possibly replace a combine — because you can start harvesting sooner and some other things — most farmers have adapted and made investments in the systems they have on their farms. But it’s a big investment; it takes a generation to save the money to do it. That’s the logic.
Senator Woo: Do you know where we can get data on the age of dryers on farms and how updated they are?
Mr. Boxall: I don’t know.
Senator Woo: Does your association have that kind of information?
Mr. Boxall: We don’t currently have it. I suppose we could poll our membership and see what they have for infrastructure when it comes to grain drying, but we don’t currently track that data. I don’t know if anyone else does.
Senator Woo: Thank you.
The Chair: Looking around the room, I don’t see any further questions. I want to say thank you to our witnesses today, both in person and online. Your assistance to us as our committee continues to examine this bill is very much appreciated, so thank you.
Thank you to our committee members for their active participation and thoughtful questions. I also want to take a moment to thank the folks who support the work that we do: Thank you to the interpreters, the debates team transcribing this meeting, the committee room attendant, the multimedia services technicians, the broadcasting team, the recording centre, ISD and our page. We really do appreciate all that you do for us.
Our next meeting, colleagues, is planned for Tuesday, October 3 at 6:30 p.m., when we will continue to hear from witnesses on Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act. At that time, we might proceed to clause-by-clause consideration. At this point, we can’t tell you that, but we might get to that. Committee members who intend to propose amendments are encouraged to consult the Office of the Senate Law Clerk to ensure any amendments are drafted in the proper format and in both official languages.
It’s also very helpful to send your amendments in advance to the clerk of the committee. That will allow the clerk to organize and distribute copies for the meeting, but please do note that your amendment will be treated in a confidential manner and will not be distributed prior to the meeting, unless you wish that to be done.
After clause-by-clause consideration, the committee might wish to append observations to the report. It is recommended that members provide prepared text in that regard for draft observations. As a reminder, the text should be short and must be in both official languages. Our clerk can assist your office with arranging for translation.
Is there any other business, colleagues?
Senator Dalphond: I have one question about the intended procedures. Does that mean we’re not going to wait for the National Finance Committee to provide some insight on the bill?
The Chair: I believe we’ve heard that the National Finance Committee will not be providing any insight on the bill.
Senator Dalphond: Was that decided by the committee?
The Chair: The committee has decided that.
Senator Dalphond: I didn’t know that.
The Chair: Have we heard that, Madam Clerk? I have heard that from the chair.
Senator Dalphond: Was a motion adopted that the committee was mandated to do that? I don’t know if the chair can reverse the house.
The Chair: I can’t comment on that.
Senator Dalphond: We can check with the house.
Senator Woo: You asked them to provide input, and they refused?
The Chair: Yes, we would have to raise that in the chamber.
Senator Woo: I think that’s an important consideration before we go to clause-by-clause consideration.
Senator Dalphond: My understanding is we are proceeding until we are fully informed, including amendments that might be necessary further to the National Finance Committee’s report.
The Chair: The clerk has pointed out that both reports are to the chamber. Their report is not to us. We can proceed with our report, and their report — if it comes to the chamber — is to the chamber itself. That’s the rules.
Senator Dalphond: Mr. Chair, I understand that it can be read that way, but the logic would be to wait for the report of the National Finance Committee in order to propose amendments at clause-by-clause consideration that might be reflective of what the National Finance Committee is suggesting.
The Chair: Those further amendments can also be made in the chamber when that report from the National Finance Committee comes to the chamber.
Senator Woo: Another option would be to invite the Chair of the National Finance Committee to tell us what this committee heard on this bill so that we can incorporate it into our deliberations.
The Chair: That’s an option. We could consider asking them to come next week. We’ll take that into consideration, and the steering committee will look into that as well. Thank you.
(The committee adjourned.)