Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 30 - Evidence - Meeting of June 1, 2017
OTTAWA, Thursday, June 1, 2017
The Standing Senate Committee on Agriculture and Forestry met this day at 8:01 a.m. to continue its study of the potential impact of the effects of climate change on the agriculture, agri-food and forestry sectors.
Senator Ghislain Maltais (Chair) presiding.
[Translation]
The Chair: This meeting of the Agriculture and Forestry Committee is called to order. Welcome. Today the committee is continuing its study of the potential impact of the effects of climate change on the agriculture, agri-food and forestry sectors. My name is Ghislain Maltais and I am a senator from Quebec. I would ask the committee members to kindly introduce themselves, starting on my left this morning.
[English]
Senator Ogilvie: Kenneth Ogilvie from Nova Scotia.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Oh: Victor Oh from Ontario.
[Translation]
Senator Pratte: André Pratte from Quebec.
Senator Petitclerc: Chantal Petitclerc from Quebec.
[English]
Senator Doyle: Norman Doyle from Newfoundland and Labrador.
Senator Bernard: Wanda Thomas Bernard from Nova Scotia.
[Translation]
The Chair: Thank you. Today we welcome, from the Railway Association of Canada, Mr. Michael Bourque, President and Chief Executive Officer, and Mr. Michael Gullo, Director, Policy, Economic and Environmental Affairs. From Canadian Pacific, we welcome Mr. Robert Taylor, Assistant Vice President, North American Advocacy, and from CN, Ms. Janet Drysdale, Vice President, Corporate Development, and Mr. David Miller, Vice President, Government Affairs. Thank you all for accepting our invitation to be here this morning.
I would like to introduce Senator Beyak, from Ontario, who has just joined us.
Mr. Bourque, you have the floor.
[English]
Michael Bourque, President and Chief Executive Officer, Railway Association of Canada: Good morning, everyone. It's a pleasure to be here this morning. You introduced everyone, so I won't repeat that.
There is so much that we can talk about with respect to climate change, but for this morning I thought I would focus on three areas. First, I'll provide the basics about our network and our environmental performance; second, I'm going to speak about the fallout from various carbon policies and the impact on the rail sector and its customers; and finally, I will suggest what governments can do to support emission-reduction efforts in Canada.
The Canadian railway network, consisting of about 44,000 route kilometres, is operated by CN and CP, plus about 60 shortline railways, and collectively they move $280 billion worth of goods each year. About 50 per cent of the country's goods destined for export and 70 per cent of the country's intercity freight traffic is moved by rail.
Climate change poses a threat to our natural ecosystems, which can, in turn, impact railway operations and, of course, our customers. We recognize the need to innovate and collaborate on sustainable solutions, and each year railways work with their customers and supply chain partners to prepare for and adapt to evolving climate conditions. Advanced winter plans, flood plans and slope and avalanche detection systems are in place across Canada's rail network, and each year CN and CP invest nearly 20 per cent of their revenues into their infrastructure and assets.
Canadian railways have a long history of working with the Government of Canada to reduce emissions, and railways can drive economic prosperity in a low carbon environment. In 1995, we signed a 10-year commitment to reduce our air contaminants. In 2006, the focus shifted to GHGs when we signed a five-year MOU with the federal Minister of Transport. These established voluntary emission reduction targets for all freight and passenger railways in Canada.
The MOU was successful and was renewed to cover performance from 2011 to 2016. The agreement is substantive and includes direct engagement with representatives from Transport Canada and Environment Canada, as well as Pollution Probe. Each year we report on our results, which are peer-reviewed and subject to an audit by an independent and accredited auditor.
Rail investments in technology have played a critical role in driving down railway emissions. New locomotives and emerging technologies like start/stop devices, anti-idling devices and throttle control are key tools for driving down emissions.
Infrastructure and track maintenance also play a key role. With fuel being one of the highest expenses for railways, the efficient movement of trains in yards and on the main line is very important. Heat switchers, rail lubrication and welded rail are just a few examples that make sure trains run smoothly and with less friction.
Equally important was the introduction of distributed power. Distributed power refers to the physical distribution of locomotives at intermediate points throughout the length of a train. This concept has enabled the movement of longer, more efficient trains.
Advanced operating practices, focused on improved asset utilization, have also contributed to substantive emissions reductions in the railway sector. Optimizing railcar and locomotive utilization, which gives the customer the ability to better plan for shipment arrivals and departures, improves fuel economy and reduces emissions.
Through these innovations, railways have managed to reduce their emissions despite an increase in traffic. Since 1990, rail-ton-miles, which are the best metric of a freight railway's work load, have increased by 80 per cent, while GHG intensities have fallen by more than 40 per cent.
If there's one message that I would hope you take away today, it is that advancements such as these are enabled by the railway sector's ability to invest in its infrastructure and assets, which, in turn, depends on a regulatory framework that encourages investment and innovation.
Let me now turn to the repercussions of carbon policy to the rail sector and its customers.
Railways are exposed to all regional and national carbon pricing policies, including the fiscal instruments used in British Columbia and Alberta, and the market-based approaches under way in Ontario, Quebec and Nova Scotia. At the federal level, railways will be subject to the proposed clean fuel standard and the federal carbon pricing backstop when it is implemented next year.
We believe that linear companies like railways, which operate in multiple jurisdictions, have been an afterthought at best in provincial and federal carbon pricing strategies. For example, Class I railway companies are required to meet multiple and often overlapping administration and reporting requirements. Having different climate policies in each jurisdiction is onerous to railways that are required to meet multiple administration and reporting requirements.
While the myriad of climate change policies that railway operations are subject to is complex and administratively heavy, fuel is the common point of regulation for all policies.
So what can governments do to support emissions reduction efforts in Canada?
We encourage government decision makers to recognize rail as part of the climate change solution. Rail is four times more fuel-efficient than truck, and one litre of fuel can move a tonne of freight 200 or so kilometres. So one litre of fuel can move a tonne of freight from here to Montreal. A single freight train can displace about 300 trucks from our busy road and highway network, which is probably the number of trucks that I passed last time I drove from Toronto. It would be nice to get those off the highway.
An internal review of fuel consumption and transportation freight volumes in the truck and rail sectors concluded that if just 10 per cent of truck traffic was transferred to rail, Canada would reduce its emissions by 3.7 megatonnes of CO2 equivalent. Additional benefits include reduced congestion and less wear and tear on the country's road and highway system. By comparison, B.C.'s taxation system is estimated to deliver a 3 megatonne reduction by 2020.
The RAC believes that government can play a crucial role in realizing modal shift by ensuring that carbon pricing revenues are recycled back into rail infrastructure for prospective rail customers.
Quebec is already leading by example, where revenues from its cap and trade initiative are reinvested into programs that allow rail customers to offset the costs associated with building rail assets. The government also provides resources to railways to help modernize their fleet and drive emissions down further. These programs are successful and have been renewed because they produce meaningful results. Recent projects sponsored by the Quebec government include investments into railway track, transload facilities and reload centres.
The federal government is intending to release a clean fuel standard for all sectors of the economy, including the forest, paper products and agricultural sectors. The standard's aim is to reduce GHG emissions by 30 megatonnes by 2030. We're fully aware of the potential challenges our customers may face in meeting the standard's requirements, as many companies have already invested in the least energy-intensive options for their production processes. We recommend that the government recognize the transportation of goods by rail as a pathway to compliance for these sectors. We think that we can be an offset and help agriculture and forest companies to meet their targets.
We thank you for the opportunity to present today. We're happy to answer any questions.
[Translation]
The Chair: Thank you. I would like to introduce two more members of the committee: Senator Mercer from Nova Scotia, deputy chair of the committee, and Senator Woo from British Columbia. We will now begin the question period.
[English]
Senator Mercer: Thank you very much for your presentation. I want to focus on a couple of issues that you raised.
You will get no argument from us, I don't think, on your statement that freight volumes in truck and rail sectors concludes if 10 per cent of truck traffic transferred to rail, it would be a huge benefit when we're talking about our CO2 emissions, the additional benefits including reduction of congestion and less wear and tear on the country's roadways, et cetera.
All that being said, where is the effort to attract truck traffic to rail? We continue to hear at this committee about many other issues, not just this one study, such as the issue of the unavailability at the right time, in the right place, of railcars to get products to market. A story I continue to tell is the pulse farmer in Saskatchewan who has his or her product ready to go to market and calls in advance for cars to pick up the product to get it to port in British Columbia to ship to his customers in Asia. Railways collectively — both major railways — cannot deliver on time. But the same farmer is having a cup of coffee in the morning, looking out his door, and in the rail line in the distance he can see container car after container car after container car heading west, empty.
I understand you'll know where the cars are, but you don't know where the containers are. Somehow you have to be able to service the customers. Number one: Is anybody working on this problem? That's one issue.
Number two is the ongoing problem that we had a couple of years ago with the availability of cars to get grain to the market. I talked about pulse product just now, but to get our valuable grain crop to market. When we were in a crisis, government hit the panic button to a certain extent. Both railways responded, but under a great deal of pressure. We didn't just get in the grain business last week. We've been a world leader in the production of this product for a long time. It's one of our premier crops, canola, et cetera. What are you doing to fix the problem?
People track me on my iPad and my cellphone. If need be, they can find me anywhere, but you guys can't find out where the cars are and have them in the right spot at the right time to get products to market in good enough shape to get premium dollar.
Mr. Bourque: I'll start by answering the first question fairly generally. I'll ask Janet to speak to the pulse aspect, and Robert will speak to the grain aspect.
Because railways, especially Canadian railways, have become so efficient, they have been slowly taking more and more truck traffic because they're able to compete at a shorter and shorter distance. So it's obviously in the interests of a company to market to a customer that is moving by truck, which is traffic that can move by rail. But often the producer, manufacturer or the potential customer is not rail-served because there is no rail infrastructure to their plant.
In the example that I gave in my talk about the Quebec program, one of the things that they've done is provided funding to manufacturers and producers in Quebec, who will then build the rail spur to their plant and the government will help pay for that; and then they commit to ship by rail in order to reduce emissions, and those emissions are counted every year. In other words, the shipper must ship by rail each year, and they are given credit, which has a cash value, for the amount that they ship by rail versus truck. That's how they've managed to use that program to reduce emissions.
On the broader question of moving grain and those customers, I'll let the railways speak for themselves.
Janet Drysdale, Vice President, Corporate Development, CN: It's a good question in terms of how grain gets to market. There are two aspects to consider. Some of the specialty crops, in particular the pulse crops coming out of Saskatchewan, will in fact move in containers because they are under a specialty type of export program where there are smaller lots, higher value. In terms of moving bulk grain to market, that would come under what we normally think of as the hopper car moves in Western Canada.
Speaking for CN, we made huge progress this year in particular in advance of this year's crop, August 1. We actually negotiated contracts with our customers that included reciprocal penalties and incentives with respect to car supply and car usage, meaning that we would pay our customers for instances where they ordered cars that we were not able to deliver, and if we delivered cars and they weren't able to load them, then clearly we would be looking for our customers to compensate us — so very much a collaborative approach in terms of how to move grain to market.
I would also say that it's important to remember that it's a supply chain, first and foremost. Rail is only one piece of that supply chain. It is also important to remember that we're not going to be capable to move the entire crop in a three- or four-month period. We don't have the rail resources to do that, there isn't the country elevator network to do that, and most important, there is not adequate infrastructure at the port to move the entire crop down in a very short time period.
There was a handful of weeks, I would say, that we weren't able to meet the weekly demand for car orders. Those orders typically were fulfilled in the following week. At the moment, and for most of the crop year, I can say we're actually current on orders. We didn't have a backlog. At the moment we actually have several thousand of our railcars parked. We know where they're parked. We've tried to park them in locations that are easily accessible so that, once the farmers finish their seeding, which has created a bit of a drop in the demand at the moment, then we're able to pull them out of storage and meet whatever demand we would see coming in.
I would reiterate that it is a supply chain effort, and every piece of the supply chain needs to be working in close communication and collaboration in order to have the most effective outcomes.
David Miller, Assistant Vice President, Government Affairs, CN: If I could add in terms of the pulse crops, it's important to remember that we don't own the containers or control the containers.The steamship lines generally own the containers and, in some cases, they want them back in the port as quickly as possible and they're not interested in having them stopped. That has been a challenge over the years. That's less of a challenge today than it probably was five or six years ago. I think you'll find these days that the pulse producers in Saskatchewan in fact are able to obtain the number of containers they need to move their crop. But that is an ongoing problem and one that we don't have any control over.
Senator Mercer: I appreciate your point of view, although it seems to me that any shipper at the Port of Vancouver whose container is empty to ship back to the Far East would be much happier to have it back full and be paid to ship it back to the Far East. There must be an economic benefit to the shipper.
Mr. Miller: There is, and we move a good percentage of containers back full. But there definitely are cases, and pre- recession this was not all uncommon, where they just wanted those containers back as quickly as possible. That was to move back over to Asia and turn them around. As I said, I don't think it's a big impediment right now, but there have been times when it has been.
Michael Gullo, Director, Policy, Economic and Environmental Affairs, Railway Association of Canada: A lot of those pulses are actually moved bulk to Vancouver and are stuffed in Vancouver. A lot of those containers reside in the port, and that's where the shipping lines who own and control the containers would like to keep them because it's a quick spin. It's an efficient way to move, because we're moving those pulses for $35 or $40 a tonne from Saskatchewan to Vancouver.
I'd like to make a couple of points. In 2013-14, we moved a record amount of grain, most ever; in 2014-15, we did the same; and in 2015-16 we did the same. This year we're down slightly, and we've invested significantly. One thing we need to think about on the rail side, if we have a bumper crop 2017-18, the next crop year, we have to start training crews now. If we need to build more track, we had to start it last year. We can't turn on a dime and move grain for $35 to $40 a tonne. That's how we compete with Australian grain at tidewater. The system is very efficient.
My last point would be there was an extra 24 million tonnes of grain to export in 2013-14. We truly had a record crop. That's more than double the amount of potash Canada exports. To Janet's point, you just can't move it overnight. We moved it, but it took us a while. We had some systems in place that weren't optimal, so we both — and CP was a leader here — moved into reciprocal agreements now where our grain customers get guaranteed capacity and they guaranteed us to use that capacity.
In 2013-14, we had what we called an open request system, so people could throw requests at us. The behaviour we had was people were throwing 200 car requests when they were really expecting to get 100. The backlog was never 150,000 railcars. There were 150,000 open requests for railcars. And once that started spinning around the media, it was hard to tamp down. But it was only a few weeks in the dark days of winter that we weren't moving significant amounts of grain, even in 2013-14.
Senator Mercer: I have a final comment. I'm looking forward to a report on reciprocal penalties when you go through a full crop year to find out how many times the railroads have been penalized and how many times the shipper has been penalized, to see if that actually has worked.
[Translation]
The Chair: You may forward those documents to the clerk.
Senator Dagenais: Mr. Bourque, you said that the carbon tax could yield additional revenues. For a while now, people have regarded the carbon tax as a miracle solution to reduce greenhouse gas emissions. Sooner or later, this tax will be passed on to consumers and it could impact the economy and the transportation of merchandise. Trains cause less pollution than trucks, and are perhaps less expensive as well. Efforts to reduce trucking might result in additional costs for consumers. Apart from changes in behaviour related to the good will of those involved, are there other measures your company could take to reduce greenhouse gas emissions without passing the additional costs on to consumers?
Mr. Bourque: That is a very good question. I will answer in English.
[English]
We've estimated the cost of carbon taxes to freight railways. In 2015, freight railways paid $55 million in carbon taxes, which excludes the federal gasoline tax. This is expected to rise to $394 million by 2022, so a very significant increase in carbon taxes.
It's true that in, theory, we are more efficient than truck, and, with the introduction of carbon taxes, customers should switch to rail because of the carbon tax implication. But the government, and governments who have carbon taxes, do have a policy option of a differentiated carbon tax for rail than truck so they can accelerate the move to rail. That is something we would favour.
[Translation]
Senator Dagenais: That is for the government to decide. The government that introduced the carbon tax is the same one that introduced the GST, which was supposed to disappear.
We still have to discuss the use of rail freight. I am from Quebec where it seems that certain rail lines have become cycling paths because they were not being used. I am referring to transportation to the most remote areas. Do you anticipate making any decisions to re-open certain rail lines for the transportation of merchandise? Certain lines are not used very much, including those in the Gaspé region.
Mr. Bourque: I invite you to my office. I have an old railway map. There certainly were more trains in the past.
[English]
But there is a very robust process that railways must go through before they abandon a line. What we've seen in the last several years is that the opposite has happened, where more rail lines have been occupied.
I remember getting a phone call five years ago from a concerned citizen that there were rail lines that were going to become a bike path and the concern was how we could ever expect to win manufacturing plants and other things that rely on freight rail if we don't have these lines. I certainly sympathize with that. I think we have to do everything we can, even if there is not an operating railway, to maintain the corridor for future use because, of course, once you allow for development, it's very difficult to get that land back. In the case of pipelines, we've seen how difficult it is once people live in a certain area.
Ms. Drysdale: There's no question that the onus is on the railways to improve service to a degree that we can attract truck freight to our network. Railways are most efficient for long haul, but we do not have the same level of precise service that a truck provides. That's really what we've been trying to improve over the past number of years, which is how can we be more truck-like in our service in order to have a value proposition to customers to actually attract them to the rail to drive the environmental benefits that we're talking about.
When we look at some of these lower density lines and some of the more remote areas, the challenge is really having enough traffic to be able to justify the capital investments that are required to keep those rail lines in operation. You will recall that the railways fully fund all of our own infrastructure. This is not a taxpayer-funded infrastructure; it's privately funded. In the remote areas, density really is our challenge.
The key to making more progress, I think, on the railway part, is trying to be more efficient to try to drive those fuel efficiencies so that we can approach a competitive-value offer to customers, even in those shorter-haul markets where trucks tend to dominate. As we continue to progress the avenues of technology and asset utilization, we will continue to make progress. Certainly, our goal is trying to figure out how to get at more of that truck traffic. As we do so, we may be able to actually improve the density of some of these lower, more remote lines, if you will.
[Translation]
Senator Dagenais: We hear a lot about trade with the United States these days; do you have an idea what the difference is between rail freight rates in Canada as compared to the United States?
[English]
Mr. Taylor: Canada has the lowest freight rates in the world, even lower than the U.S. CN and CP, over the last 15 or 20 years, have driven efficiencies at a world-class level. You are looking at the two most efficient Class 1 railways in North America right now.
The big four U.S. railroads, two west of the Mississippi and two east of the Mississippi, have become more financially sustainable, but they've done it more on the rate side. Rail rates in Canada, since 1990, are flat from a real basis. We've really tracked inflation in terms of rates, and we've done that by driving operational efficiency.
One of the positive outcomes — not completely unintended, obviously — is a better emissions performance. We have driven our intensity-based GHG emissions down by 40 per cent, which is quite remarkable. Those two are linked.
Senator Ogilvie: Mr. Bourque, I was struck by your comment about the issue of dealing with the different carbon pricing regimes province-to-province. I just have a technical question first.
How is that determined? Is there an electronic record of the trains and the number of cars crossing each border, or do you have to submit monthly or quarterly or some sort of paper submission to various provinces in this regard?
Mr. Bourque: That is a pretty technical question. Michael, do you want to take a stab at that, or maybe Janet knows better how that works.
Mr. Gullo: It is a technical question, and it's a complex question to provide a very succinct answer to, but, if you look across the board at the various carbon-pricing strategies, whether they're implemented at a provincial level or federal level, you start in the West. You have a fiscal tax in B.C. You have a levy in Alberta. If you move eastward, you have cap and trade systems in Ontario and Quebec, and then you also have Nova Scotia declaring its intent to move forward with a similar cap and trade system.At the structural level, they are all designed to do the same thing, and it's to put a price on fuel. Really, where the transaction occurs depends on how a railway purchases its fuel from its fuel supplier. It's different in the West, and it's different in the East.
If you purchase your fuel from a railway supplier in the West, because it is a tax-based system like a fiscal instrument, you can see that there is a tax fee on your bill. So it is transaction-based.
In the East, where it is under a cap and trade system, it is a bit more complex and, frankly, not as transparent as the systems that exist in the West because the fuel transaction that triggers the regulatory requirements is when the fuel first hits the market. Often, that can be between a fuel producer and a fuel retailer, so the railway doesn't see what those taxes are or the costs of carbon are. They simply purchase the fuel, and there isn't a succinct line item like there is in the West under the carbon tax system in B.C.
To answer your question, it depends on the region how you can see it, but the ultimate denominator is fuel price.
Senator Ogilvie: So you only pay the tax at the point that the fuel is purchased, regardless of how far the train travels on that load of fuel?
Ms. Drysdale: No, it is actually based on fuel usage in the jurisdiction where the overarching regulatory framework exists. In the case of B.C., where there is a carbon tax, we have to know exactly how much fuel we are burning in B.C. That kind of keeps our tax folks employed in terms of making those calculations and working out the technical details.For administrative simplicity, I think Michael is exactly right; a tax is easier to administer.
That being said, we strongly favour the lead that Quebec has taken and the Quebec programs that they have implemented because the monies that are being collected in terms of the cap and trade program are then being reinvested to help subsidize customers, for example, that don't have rail access into their facility and to encourage modal conversion from truck to rail. We find that that program actually has worked very well.
Senator Ogilvie: What I am trying to get at here is the problem that we have of doing business in this country divided into provinces.It seems to me that if you cross 10 borders with a given train from Vancouver to the East and you go through eight or nine provinces in doing that, and if you pay a fee in each of those provinces, the first question is: Do you pay a fee in each of those provinces? I don't care how it is based. Do you pay a carbon fee in each province?
Ms. Drysdale: B.C., Alberta and Quebec today are the three jurisdictions that have a framework. But you are right; as more provinces come online, each one will have a different version.
Senator Ogilvie: This is my point. Various of us have looked at a lot of aspects of the attempts of companies that are broadly based to do business in this country and be competitive with other nations. It seems to me that, in a situation where governments are putting on a charge, I think largely for political reasons, not for total understanding of anything in terms of long-term issues, especially in terms of the Canadian situation versus world polluters, where we are very low relative to the world in general, the difficulties just in the different regimes from province to province are an enormous burden. This is true in the transportation industry generally.
Ms. Drysdale: Yes, you are right.
Senator Ogilvie: I know you are sometimes synergistic with truck travel, but sometimes competitors with that, but all elements of broad-based transportation face costs.
Mr. Taylor: Yes, this is suboptimal. I will not debate the politics or the policy of carbon talk, but this is administratively very complex. We are trying to work through some of those issues right now as it gets deployed because, by 2018, it is going to be deployed right across the country. Canada is going to step in if the other regimes don't. It is suboptimal from an administrative perspective.
Senator Ogilvie: So I've gotten the answer that is going to be the basis of my question, and that is: How are you organizing to try? Here we are with a new imposition of a cost of doing business in this country. Every province has been lobbied to try to get rid of differential border costs for doing business. Here's something new coming in. I know it's a political issue, so the individual provinces have no motivation to do something that helps the country as a whole, but you are an industry that crosses all of those borders. There are other industries that do the same, certainly in transportation.
Is there a collective effort to try to convince these people once and for all that if they are going to impose a cost of doing business, it should be done in the most efficient way to the transportation companies that are dealing with this? Is there a heavy effort on the part of your industry to convince them to harmonize this kind of issue?
With all of the electronic devices we have these days, I can cross the United States with a gadget that distributes the cost of my tolls to the different states without me even seeing it — just a total cost. It seems to me that with something as critical as transportation, our provinces should be working collectively and with the federal government to establish a regulation that at least minimizes your cost of handling it. You will not be able to deal with the political issue of imposing it, but surely you have a way of trying to articulate the need to have the most efficient way of dealing with it possible.
Mr. Bourque: I will take a stab at answering that, at great risk.
Going back to why we have provincial schemes, I think a number of provinces, in fairness to them, moved because there was no movement federally. This is what created the patchwork quilt. If the federal government had moved more quickly on the carbon tax side, then they could have established a foothold in industries like ours that cross all the borders.
I think the way we have to do it now is backwards. We have to wait until all the provinces agree to have a carbon tax and then look to the federal scheme to try to get harmonization after the fact. That is just the reality. The other reality is that, in the meantime, we employ additional auditors, tax experts, bookkeepers and others who need to keep track of everything so that we are compliant with all the governments.
Senator Ogilvie: Mr. Chair, I give up. Thank you.
Mr. Taylor: We are focused on this at the provincial level and trying to work through the detail now. It gets complicated because it all has to have an audit trail and it is a tax, so it is not simple.
RAC's good leadership completed a study that we can share with the committee on the cost of compliance. That's that number that Michael just quoted, which is $300-and-some million. We could look at the administrative burden because all of these regimes are different and they all have their own kind of complexities. It is quite an active file for me right now with our tax team and our procurement team.
Mr. Bourque: It goes from roughly $50 million to $400 million from 2015 to 2022. It is a short period and a steep curve.
Mr. Taylor: We have to figure out where we are burning fuel and where we are sourcing that fuel from. It is complicated.
Senator Ogilvie: Thank you.
Senator Pratte: I have a quick follow-up question so that I understand exactly where you stand on this. Ideally, what you would like therefore is a national policy. Ideally, if I understand correctly, you would have a cap-and-trade system, where the monies would be reinvested in schemes that would help your industry and other industries also.
Mr. Bourque: There are pros and cons to each approach. The straight carbon tax is easier to administer and is more transparent, but what we like about the cap-and-trade program is that money that is collected is reinvested in efforts to try to increase the number of customers who can use rail. We speak about modal shift. We are interested in modal shift. As Janet points out, you will not drive a train up to a Walmart store. You will still have truck traffic for short distances, but if we can optimize the supply chain to have long distances and more of that traffic on the rails and provide the right policies that will incent modal shift, then it could be a combination.
I mentioned earlier that I really believe that one of the things that governments can do is have a differentiated carbon tax for rail and truck. Yes, it's true that just with a carbon tax, because we are more efficient, customers would naturally gravitate toward rail, but we have made obligations to reduce emissions. We have repeatedly missed those targets. If government is serious about wanting to achieve targets, they have these potential tools to accelerate modal shift and, therefore, accelerate the reduction of emissions using rail. At the same time, this is not harmful to the economy. In fact, it supports the economy. There aren't many industries that can come forward and say, "We can reduce emissions and increase production.'' But we can say that.
Senator Pratte: So you don't really have a preference for cap-and-trade; it depends on where the money is used. You can have a tax scheme where the money is reinvested. You don't have a preference for cap-and-trade; it really depends on where the money is reinvested.
Mr. Taylor: Actually, we have a preference for a tax maybe for the simplicity of it. In B.C., they did a carbon tax which was revenue neutral broadly; Alberta was a bit different. A national carbon tax would be administratively probably the simplest. I think that's fair to say.
Senator Pratte: Thank you.
Senator Beyak: Thank you for your presentation. I am a big fan of the railroad. My dad and mom didn't have a car. They took us everywhere on the train as passengers.
I am also a tax advocate. I don't think we need any taxes — carbon taxes or cap-and-trade. The minister is famous and consistent for admonishing us that pollution isn't free. We all know that, but we already pay taxes until the middle of June — companies and citizens. I would like to see a wiser use of those tax dollars.
I have the same question as Senator Ogilvie. What kind of strategy do you have collaboratively to tell the government about the importance of rail? I think governments over decades haven't invested enough in our world-class railroads across the country. We built it through the mountains and did an impossible task, and I don't believe it is given the priority it deserves. Do you lobby the government for rail transport for passengers and for goods to give it more priority?
Mr. Bourque: The Railway Association of Canada represents both passenger and freight rail, and in the passenger segment we have tourist railways like Rocky Mountaineer, we have VIA, and we have commuter rail like GO and AMT. We do have tremendous interest in advancing rail of all kinds.
I agree with you that this is an area that we should focus on because the same argument that we have been making for a modal shift on the freight side is true on the passenger side. For example, with the proposal that VIA has put forward of having greater frequency of trains scheduled between Montreal, Toronto and Ottawa, one of the statistics that they put forward, which I find compelling, is that, currently, of the trips taken between Montreal, Toronto and Ottawa, 82 per cent are by car. That represents a lot of low-hanging fruit. Why are people going by car? Well, many of them don't like to fly or flying is cost prohibitive, or they are going to places that are not well served by air. Those kinds of initiatives can help to have a human modal shift, if you will.
Senator Oh: I have a question following on Senator Mercer's. The two most important cities, Montreal and Toronto, if you go by truck on the road, it is probably seven to eight hours, door-to-door. Can rail compete with that time, the door-to-door service? Shipping costs are key to any business, and for door-to-door service between Montreal and Toronto, are you able to compete on time and cost with truck freight?
Ms. Drysdale: Montreal to Toronto is probably one of the toughest markets for rail to compete with trucking because it still falls in with what we consider a short-haul type of movement. It is very successful in terms of competing Montreal-Toronto to Calgary, Edmonton, Vancouver, but in the short-haul segment of Toronto to Montreal, and especially on a door-to-door basis, rail would still struggle today to compete in that kind of corridor. That is one of the things we are focused on: How do we solve that problem going forward and can technology and innovation help us bring some of those solutions where we can be more competitive in that shorter distance? Certainly, leveraging the fuel efficiency would be part of that solution, but today it's still very difficult to compete in that short corridor.
Mr. Taylor: I don't have much to add. We introduced an expressway service at CP a number of years ago to directly compete with truck. That's an intermodal service that is unique. It is not a container in a car like you mostly see; you drive the truck on a flatbed. That was targeted at that truck traffic between Montreal and Toronto, and we didn't have a lot of success with it.
We are really trying to grow our domestic intermodal business — both companies. We offer a four-day hit now from Vancouver to Toronto; a four-day hit from Vancouver to Chicago.
Our business is, you take the international container — an example would be snow blowers — you are co-located with a Canadian Tire; they stuff a container for the Canadian Tire over here on Coventry Road and that goes from Vancouver DC — a distribution centre — into Toronto and on a truck into Ottawa. That is really the core of the rail business now. These really short corridors are tough for us, but we continue to focus on our service offering and reliability and technology to be able to hit that.
Some of the policies are a little frustrating as well. In Ontario, they introduced the double 53. It is two 53-foot trucks, which makes it tougher to compete, moving on a subsidized highway, where we pay for all our infrastructure. We want to pay for our infrastructure. We are investing $1.5 billion a year. We need to invest, but we find some of the policies a bit perplexing at times.
Senator Oh: Did I hear you say you paid almost $400 million in carbon tax to date?
Mr. Bourque: No, it's the estimates, and again, based on this Delphi Group study that we will table with the committee. We paid $55 million in 2015, and our estimate is that it will go to $394 million by 2022.
Senator Oh: For carbon taxes?
Mr. Bourque: That's carbon tax.
Senator Oh: It is so complicated and the country is so wide, province to province. Do you think this carbon tax plan was properly implemented by the federal government before it was thrown into the market? Now, it seems to be a cash cow with everyone trying to jump in, every province, and eventually there will be more. Do you think this was properly planned and designed before we implemented this carbon tax?
Mr. Bourque: We had this discussion a moment ago. I think it has been an iterative process where some provinces felt the need to introduce carbon taxes early.
Quebec, for example, has had their program since the country ratified Kyoto, and they followed up with commitments toward those targets. That is quite a long time ago. To give them credit, they created a program that worked quite well as far as transportation is concerned, and certainly for rail because it does provide the incentive to shift from truck to rail. In fact, when I have seen Quebec officials give the presentation on all of their programs for reducing emissions, the transportation department has reduced the most emissions of all their departments, and the rail section, the truck-to-rail program, has reduced the most emissions out of their transport emissions. So they have been able to do things efficiently and successfully.
If the question is, if we had a blank slate, how would we do this, certainly we are federally regulated for a reason because we are a national infrastructure and it would make more sense to have one program, but I expect we will eventually get there.
Mr. Taylor: I really don't have a lot to add.
Senator Petitclerc: Most of the questions have been answered by now.
Senator Doyle: That is my problem, too.
Senator Petitclerc: Initially my question was on truck versus rail, but that has been covered.
For my own curiosity, like many of us, and you probably more than anybody, I grew up with the common belief that Canada is not the best country for rail because of its density and how big it is. That is a common belief, I guess — perhaps not as much now. What other countries are competitive with similar challenges? Who are the leaders in terms of rail efficiency and economics versus environment? Who are we looking up to?
Ms. Drysdale: Canada is the global leader, I would say. I am speaking for freight in this context. Part of that is the vast geography that enables us to be quite competitive and to move product. It is really the only efficient way for Canada to actually move product, particularly some of our bulk export products. The economy depends upon it and depends upon our efficiency.
As Robert mentioned earlier, CN and CP are the two most efficient railways in North America, and North America would have the most efficient railways on a global basis.
Senator Petitclerc: That is good to know. Thank you.
Senator Doyle: You spoke about new technologies being used to reduce GHGs in locomotives and that kind of thing. Could you tell us a bit more about that? What exactly are the new mechanical technologies that you would use? You said "distributive power.'' Could you explain a bit more what that means? It refers to the physical distribution of locomotives at intermediate points throughout the length of the train.
Mr. Taylor: One of the key drivers, senator, in terms of our operational efficiency that drives our fuel efficiency has been longer, heavier trains. Some of these trains are now pushing 20,000 tonnes. The only way to manage the train forces in that train is to have locomotives throughout the train. We would have one on the head end, maybe one in the middle and maybe one on the end.
We use a piece of technology at CP — I'm not sure what CN uses — called tram where that drives the marshalling. It gets quite complex because you can't put heavy cars next to empty cars because you are always trying to manage train forces. If you don't manage train forces properly, you will derail and push a car off the track. Heavier and longer allows us to reduce our dwell, keep those trains out of yards and drive our velocity.
The other piece of technology that is in the locomotive itself is the trip optimizer. The engineer gets input based upon the terrain in terms of what notch to be in. The computer the locomotive is actually based upon, based upon grades, is telling the engineer the optimal amount of a throttle input in that kind of train.
The new locomotives are more efficient. We continue to invest in new locomotives over time. We have taken a little hiatus, but we continue to retrofit locomotives. It is all incremental benefit here.
I guess in the longer term we are looking at LNG, which is a quantum leap, but that is something that we're definitely looking at.
If the committee had time, it would be interesting to see, because we have the newest in North America. We've leapfrogged others a little bit. CN used to have the newest. Our rail traffic control centre is quite amazing to see, how we kind of optimize our network and the visibility we have to our network. At any one time, we have about 300 trains moving on CP. We have green, red, yellow, blue, ahead of time, on time, and then you can kind of click and really drill down. A train that is dwelling for a few hours in a yard is a bad day at CP. We want to drive everything. That's how we keep rates down. That's how we keep fuel down. It's a combination of technology and really strong operating principles.
One of the reasons why CN and CP are leaders now is that we really invented the precision railroading model. It started in the smaller U.S. railroad, but CN and CP really came up with the operating practices to drive that efficiency, which drives our fuel efficiency.
Ms. Drysdale: I would just add, in terms of the technology on the locomotive, that it's really about measuring the amount of horsepower that you're using for the tonnage that you're pulling. You don't want to use more power than you have to. It's trying to get that ratio right. With the new technology on the locomotive, we're actually able to measure that parameter, and we're also able to measure how the locomotive engineer is handling the train. We're able to do that in real time.
As Robert is saying, we could have a monitoring situation where somebody has their computer screens open and the locomotive engineer is going a little too fast. He's hurrying up, but we know that, based on the terrain and geography, he's going to have to slow down anyway. We can actually make a direct call to the locomotive engineer and say, "You need to adjust the way that you're driving.''
When we talk about technology, this is one aspect. It's harnessing the data, using the data in real time and getting even better at using things like predictive analytics and understanding which of our various fuel-efficiency initiatives have actually driven the most results and how we reinvest more in those. It's about data technology and using the data and then making better decisions because of it.
Mr. Taylor: If I could make one point very quickly, one of the things I find sometimes the most frustrating is people look at our equipment. It's the same basic technology that's been around for a long, long time. Steel on steel has a very low friction coefficient, both static and kinetic. That's how we move. A Honda Civic can move a truck steel on steel. The basic technology has been around for a long, long time. People look at it and say, "Okay, it's old,'' but they don't see all of the other things that are going on, all of the back-office things, all of the things in the locomotives, all of the inspection technologies. I think we need to do a better job ourselves in telling that story because we are significant consumers of technology. We're not perfect, but it has driven some of our success.
[Translation]
The Chair: Before we conclude, I have two brief questions regarding train passengers' concerns about safety at boarding time. In the case of air travel, it has almost gone to the extreme, whereas for bus travel it is ignored. What about rail travel?
[English]
Mr. Bourque: I'm probably not the best person to ask, but what I can tell you is that there is a very extensive network of security experts who collaborate in passenger rail, both Canada and the U.S. and across Canada. There are a number of measures that are in place that passengers don't see. There has been some talk recently about having to scan passenger bags and so on, more like the airports are doing. Speaking as a passenger myself, nobody is looking forward to having to do that. What I would suggest is that, if this is an area that's of interest to the committee, there are security folks at Transport Canada, as well as VIA Rail, who would be happy to come and brief the committee on the details of those plans. I can tell you that there are regular exercises and so on.
[Translation]
The Chair: What about high-speed rail between Ontario and Quebec? Is that project still in the works or is it closed?
[English]
Mr. Bourque: Thanks for asking that question because I always appreciate the opportunity to explain to people the difference between high-speed rail and high-frequency rail, which is what VIA Rail is currently proposing. High-speed rail is generally considered to be around 300 kilometres an hour. If you're going to run a train at 300 kilometres an hour, you cannot have a single crossing. Therefore, your train would have to be on a completely green field, with no roads, which is virtually impossible, or have to be elevated. There are very few places in Canada that could justify the enormous cost and benefit of that because the only way that you take advantage of 300 kilometres an hour is if you don't stop. By definition, you're going from point A to point B, and you're not stopping anywhere else.
I'm a frequent user of VIA Rail, and I have an app on my phone that tells me how fast they're going. I invite you to download an app like that. It's quite fun. You take it out. They regularly go 160 kilometres an hour. That's on existing freight track. If they are able to, in certain areas, travel on their own track and raise the standard of that track to the next level, they would easily be able to go 200 kilometres an hour, and they would be able to run trains on different schedules that are not dependent on the freight.
But I must say that this is a considerable cost. It's currently something that the federal government is looking at. Again, I would encourage you, on that matter, to invite the president of VIA Rail to speak to you and to invite Transport Canada, who have examined their plans and who would have some visibility on where that is in the system right now.
[Translation]
The Chair: In conclusion, I will give the floor the deputy chair of the committee, Senator Mercer.
[English]
Senator Mercer: First of all, I want to thank everybody for their presentations. This is a recurring theme that we come back to time and again. We're now talking about carbon tax. We're talking about the effect of climate change in the agriculture sector, but we continue to come back to the importance of rail. I just want to thank everybody here at the table for their participation and their continued participation. I encourage you, as we continue this study, if you see things that we're missing or points that you may have forgotten this morning, don't hesitate to get back to us through the clerk and get that information to us — he will share that with us — because it's important. We are very proud of our railroads in Canada. It's part of our history, but it's also part of — I was going to say part of the problem. It's not part of the problem; it's part of the solution. We encourage you to continue your good work.
[Translation]
The Chair: Thank you ever so much for your testimony. This is a topic of great interest to senators. The people from the railroads built our country. You will no doubt continue to help us in the 21st century. You are always welcome. As the deputy chair said, if you have further information that could be helpful, you can certainly forward it to our clerk.
[English]
Senator Terry M. Mercer (Deputy Chair) in the chair.
The Deputy Chair: Our next panel is from the Dairy Farmers of Canada, with Yves Leduc, Director, Policy and International Trade; and Ron Maynard, Member of Board of Directors.
Gentlemen, please make your presentation. It will be followed by questions from the senators. Mr. Maynard, please proceed.
Ron Maynard, Member of Board of Directors, Dairy Farmers of Canada: Thank you very much. On behalf of Dairy Farmers of Canada, we want to thank you for the opportunity to appear in front of the committee today.
Canadian dairy farmers are responsible stewards of the land, water and air. We continuously strive to increase our sustainability and reduce the impacts that our businesses have on climate change and the environment.
In April 2017, Canada released a National Inventory Report on greenhouse gases. Based on this report, in 2015, the Canadian dairy industry contributed only 0.76 per cent of Canada's total greenhouse gas emissions. Furthermore, between 1990 and 2015, the Canadian dairy industry reduced its carbon footprint by 20 per cent. Over the same period of time, we have seen a 28 per cent decrease in greenhouse gases per hectolitre of milk produced. Today's average cow can produce roughly 1.6 times the amount of milk that the average cow did in 1990. The bottom line is that the efforts of Canadian dairy farmers to continuously increase our on-farm productivity have contributed to a significant reduction of the sector's carbon footprint.
In a lifecycle analysis of Canadian milk that was conducted in 2012, the average carbon footprint of a litre of Canadian milk was estimated at 1.01 kilograms of CO2 equivalent. This was one of the lowest in the world at that time. Dairy Farmers of Canada is currently looking into updating this analysis and hope to have an updated report within the next year.
In addition, the industry has recently created an on-farm footprinter known as Dairy Farms +, which allows an individual farmer to calculate the carbon footprint of their own farm. Using this tool, Canadian dairy farmers can also create different scenarios to evaluate the impact of one activity versus another, meaning they can continuously improve their on-farm practices to reduce their environmental impacts. As an industry, dairy farmers have every intention of continuing our efforts and investments into further reduction of the environmental impact.
On the farm, the effects of climate change can be seen in the form of extreme weather events. While there may be some benefit to warmer weather and longer growing seasons for crops, those same crops may also be subjected to an unpredictable array of drought, flooding, heat and other weather events. Crop pests, which have long been controlled by winter weather, may also become more prevalent following easier winters. In addition, new types of diseases, such as the ones passed on by ticks, may appear more frequently in Canadian dairy herds.
It should also be noted that Canada's dairy industry currently has little reliance on crop irrigation, except in a few small areas of the country. However, water availability may become a greater issue. As a consequence, there may be a need for deeper wells or more irrigation in the future.
Another impact of the changing climate is the effect of heat and temperature fluctuations on the cows themselves. Heat stress can result in decreased feed intake, increased concern for health and a corresponding decrease in milk production. Improved ventilation, building design and cow cooling will be increasingly important investments. While the technology is available, cooling requires a lot of energy and is costly. Research into better handling of temperature fluctuations, improved cow cooling practices and technologies that do not increase energy use may become necessary.
While DFC supports reducing greenhouse gas emissions and environmental impacts and can demonstrate that Canadian dairy farmers have already made progress here, we do have some concerns related to carbon pricing. The federal government has mandated provinces to develop their own carbon pricing programs, which is leading to a patchwork of pricing structures. Farmers in some provinces, like B.C. and Alberta and my province of P.E.I., receive exemptions or rebates on the carbon tax on some on-farm fuels. Farmers in other provinces, like Ontario, must pay all costs of the price on carbon. This may lead to cost inequities in the market. This disparity can be further exacerbated when you consider the impact of competing with imports allowed from countries that do not have overarching carbon pricing schemes, such as the U.S.
Dairy farmers have made significant reductions in their environmental footprint in the past without carbon pricing and will continue to do so whether there is a price on carbon or not. While DFC recognizes that the federal government has committed to putting a price on carbon, there may be more effective ways to support the reduction of greenhouse gases for the Canadian dairy sector in particular. In our submission, you will find more details on the following five ways DFC believes the government could support our efforts.
The first is to continue to support research and improve the sustainability of dairy production such as through further genetic or genomic improvements that increase production efficiency and result in lowered emissions per litre of milk; second, increase support for knowledge transfer initiatives, such as demonstration projects or field days, which will help farmers to, for example, reduce nitrogen loss from field crop production and reduce methane loss from manure management and from enteric fermentation; third, continue to support our proAction initiative; fourth, continue to support cross-commodity collaborations in sustainability and climate change, such as the Canadian Roundtable for Sustainable Beef, as these collaborations provide benefit to the agricultural sector as a whole; and fifth, increase the support for beneficial initiatives and cost-sharing programs in order to drive increased adoption of practices that will reduce greenhouse gases.
The government's support on each of these five points will facilitate the Canadian dairy industry's continuing efforts to decrease its carbon footprint.
Canadian dairy farmers believe that environmental sustainability is of critical importance. We take great pride in our responsibility as stewards of the land, and seek to continuously reduce our environmental impacts over time. Preserving the environment matters to all Canadians. With the support of the Canadian government, dairy farmers will continue to build on our success story.
Thank you.
[Translation]
The Deputy Chair: Thank you very much, Mr. Maynard. The first question will be from Senator Dagenais.
Senator Dagenais: Thank you for your presentation, Mr. Maynard. You said that, between 1990 and 2015, greenhouse gas emissions from cows decreased and that cows produced more milk. I must say I am having some trouble understanding that. A cow is not a machine, but an animal. Can you explain that? I worked in a region with a lot of dairy farmers, and I have visited dairy operations. I have a bit of trouble understanding how a cow has lower greenhouse gas emissions and produces more milk.
[English]
Mr. Maynard: What we're talking about is efficiency. It takes a certain amount of feed to maintain a cow, whether she's producing 20 litres or 50 litres. That's what we're talking about, that over the last 25 years, we have, through better feeding, better management and better breeding, increased the productivity of that cow. The basis of our whole goal is to increase efficiency; and in increasing efficiency, as I say to people, on my farm, if you look at the greenhouse gases, you look at nitrogen, carbon, oxygen, and hydrogen. The only thing I don't pay for coming into the farm is oxygen. If I can get an efficient use of those other gases, that's the way to reduce the carbon footprint. It's also the way to reduce my costs. That's how we've done it over the years, is continuously to improve the productivity of that cow, because, as I say, the cow is going to produce a certain amount of methane just from living. So the more milk that you can get out of her, your costs on a per-litre basis of carbon equivalents go down. I hope that answers your question.
[Translation]
Senator Dagenais: A former Quebec minister, Nathalie Normandeau, said that the farts of cows caused greenhouse gases, and no one took her seriously. She would be happy to hear you today. Thank you for the explanation.
Senator Ghislain Maltais (Chair) presiding.
The Chair: Thank you very much, Mr. Maynard.
You have the floor, Senator Mercer.
[English]
Senator Mercer: To continue on with Senator Dagenais' intervention, I remember a visit this committee made many years ago to New Zealand. The single cause of New Zealand's greenhouse gas problems is the rear end of their dairy cows. It was the single biggest cause of greenhouse gas in New Zealand at the time. They have a problem with their smaller animals.
Gentlemen, you've talked about the effect of a carbon tax. You also mention measuring — you said Dairy Farms +. You talked about that program. How does this work? I'm on a small farm in rural Nova Scotia and I want to measure my greenhouse gas problems. How does this help me, and how much effort and how much cost is it going to add to my operation?
Mr. Maynard: The Dairy Farms +, we're just starting on this program. It is a very accurate tool to calculate the greenhouse gas emissions on your farm. The problem is that a lot of the information that you need as far as feed efficiency and fuel efficiency may not be at the fingertips of farmers. That's the next phase of our project. Right now, that information is probably not available to the majority of farmers. It's like a lot of other things: the top 10 or 15 per cent of the farms probably have that information available, but the bulk of the farms don't have that information readily available.
We have a milk recording system in Canada, and our next goal is to take this and tie the two of them together so that information is readily available and this tool can be readily available to a greater population of the farmers.
Senator Mercer: How much is it going to cost the farmer in rural Nova Scotia to have this system in place? How much is it goes to cost for him to administer it and how much time is it going to take him or somebody else in the family to do it?
Mr. Maynard: It's an online tool. It's a computer program. You go in and plug in your figures, cow numbers, acres, what crops you're using, what crops you're feeding, what production. You have to have a certain level of detail, of course; as good as the information you put in is going to be as good as the information you put out.
Senator Mercer: Garbage in, garbage out.
Mr. Maynard: We're looking at improving the accuracy of that, because it will tell me if I do this scenario, if I change my feeding program from using dry corn to corncob meal or high-moisture corn, what the effect is. What is my greenhouse gas effect from that? How much will that reduce my carbon footprint? You have to have good details. If you're saying "I wasn't sure about that'' or "I made an assumption on that initial figure going in,'' how accurate is my assumption at the other end? The tool is there and we know it works. Now we've got to fine-tune it and make it so the information is more available and accurate for the greater number of the farmers.
I might just mention about New Zealand. It's rather interesting. New Zealand's biggest restriction right now is not the cows itself; it's the urine and production of nitrous oxide, which, as we all know is many times more harmful to the environment than methane. The Green Party in New Zealand the other day — there are 6.6 million cows in New Zealand — say they're going to have to cut their numbers back to 4.3 million cows in order to meet their greenhouse gas targets, and it's mainly because of nitrous oxide because of the urine that goes on pastures.
Other countries are also facing issues in the dairy industry. I'm involved in the International Dairy Federation on the environment committees and some of the farm management committees. It's a challenge around the world. It's not only Canada that's facing climate change initiatives, but dairy industries around the world also.
Senator Mercer: I appreciate your update on the New Zealand system, because I use New Zealand as an example when talking about greenhouse gases and the effect that agriculture can have, and especially in a small place like New Zealand.
Senator Pratte: In your presentation, you talk about the possible effects of climate change on the animals and on conditions in general, but you talk of those effects as something in the future, theoretically. I was wondering whether some of those effects have been felt already by producers or whether they are simply possible things that would happen in the future.
Mr. Maynard: No, they have already been affected. We track the number of days over 30 degrees. In Ontario here, how many days were over 30 degrees? When you get temperatures over 26 degrees, depending on your humidity, it dramatically affects cows. I am from Prince Edward Island, and the days over 26 degrees you can probably count on one hand. We spent about $15,000 last year on our barns putting in ventilation fans and high-intensity fans because we are having more of those over-26-degree days on Prince Edward Island. It is already affecting us. That increase in temperature is most certainly affecting us. Cows in warm weather don't produce well. They are stressed, indeed.
Senator Pratte: So it is a real matter for concern, then?
Mr. Maynard: Yes. The other aspect of it is the temperature fluctuation, which is probably more of a concern. Some days it will be 22 degrees, and the next day it is down to 6 degrees. Us humans can put on another coat or close the door and say, "I guess I won't go outside today,'' but cows don't have that option of putting on a coat. The dramatic fluctuations and changes have a greater effect, pneumonias and things like that. We're seeing a larger chance of that. You have to be very sharp and make sure that your curtains and your ventilation system are up to scratch. It's another challenge we have on the farm.
Senator Pratte: On another issue, if I read your presentation correctly, you seem to be opposed to any kind of carbon pricing system because either it puts you in a noncompetitive position in cases where imports are allowed or you would have to pass on those price increases to consumers and don't want to do that. Am I correct?
Mr. Maynard: We have said we have already been gaining efficiency on the farms, and we will continue to do that. One of the reasons is because of the stability that we have in the supply management system. We can make those long- term investments, and that is what they are, long-term investments.
One of our concerns is that, because we have a Canadian system, the milk is pooled from one side of the country to the other, and we find that my cost of production may be different in Prince Edward Island because of carbon pricing than someone here in Ontario or than someone in Manitoba, for example. That is of concern to us because we have a pooled product. That is one of our concerns.
We realize that costs will go up in this carbon pricing scheme. That has some effect on the farm. On my own farm, within the last two months, we replaced a propane system with an electrical system for heating water. The old system was 22 years old, and you couldn't get the parts for it anymore. We said, "Okay, it has to be replaced. Do we go with propane, or do we go with electricity? Okay, there's going to be a carbon tax, so we will probably go with electricity.''
The other aspect of it, with the advancement in technologies today, is with solar panels. We have lots of roof space on our farm. Down the road, we are saying that the technology may very well be there for us to produce our own electricity, where that technology it is not there to produce propane and/or fossil fuels. That is the thinking on our farm. There is some effect on the carbon, but I think what we're saying here is that the other programs that we've pointed out will have a greater impact than carbon pricing on the dairy farm.
Senator Pratte: Thank you.
Senator Doyle: According to our notes here, the DFC are in the process of developing an action plan. What are the key components of the action plan to reduce the economic footprint, and is the federal government involved in it at all?
Yves Leduc, Director, Policy and International Trade, Dairy Farmers of Canada: Our action plan is a broader plan that involves continuing the activities that we are currently working on, from a research perspective in particular. We think that increased funding in research is one way to address very important issues, such as how to reduce greenhouse gas emissions. As Mr. Maynard mentioned earlier, our research has allowed us to reduce our carbon footprint from a dairy perspective over the years, through increased efficiency from a feeding perspective and a breeding perspective. Those efficiencies have all resulted from increased research.
We have put in place a dairy research cluster, where, from 2013 to 2018, we would have spent over $20 million. Some of those dollars come from the federal government, from a matching fund perspective, and are helping the industry to invest in better research to address some of those particular issues. That is part of the broader plan.
Senator Doyle: So it is a full national plan, and the federal government is involved in it?
Mr. Leduc: Correct. We also have an initiative called proAction, which is an initiative that aims at assuring consumers that the dairy industry is addressing and doing the right things when it comes to not only the quality of our milk but also addressing some social concerns such as environmental concerns. That is one of the modules as part of our proAction initiative.
Senator Doyle: I thought it was interesting here that the carbon footprint of raw milk is lower in Western Canada than it is in Eastern Canada. Why would that be?
Mr. Maynard: I guess it's based on volume of production. We have one of our people here who — I am surprised at that comment, actually.
Senator Doyle: Yes. It says the carbon footprint of raw milk is lower in Canada's western provinces than in the eastern provinces, according to scientific results published in the article entitled "Carbon Footprint of Canadian Dairy Products.''
Mr. Leduc: I want to point out that we have our environmental expert here with us. She claims that is a surprise to her. We will look into that more closely. That is the only thing I can commit to right now.
Senator Doyle: Yes, okay.
[Translation]
The Chair: If you have any information on those results, could you please forward them to our clerk?
Mr. Leduc: We will.
[English]
Senator Woo: I want to ask about the competitiveness in carbon pricing for dairy farmers. First, is it correct to say that on-farm fuel is the single biggest source of GHG emissions on a dairy farm? Would that be correct?
Mr. Maynard: No.
Senator Woo: What would it be then?
Mr. Maynard: No, the single biggest source is enteric fermentation, from the cows themselves. The next biggest would be from the manure, storage and how you handle and apply it.
Actually, the fossil fuels is the smaller part. If I take a look at the lines on my cost of production, I spend $40,000 a year on fuel, but I spend $250,000 a year on feed. Manure removal and whatnot is almost as expensive as the fuel itself.
The actual fossil fuel use on farms is probably less. My electrical costs are nearly half what the fossil fuels are.
Senator Woo: No, I mean all kinds of energy costs rather than fossil fuel costs. What would energy costs be as a share of total input costs for a typical farm? Could you give me an estimate?
Mr. Maynard: A typical farm — if I look at our own farm, it's probably in the range of 15 per cent.
Senator Woo: Fairly small.
Mr. Maynard: Yes.
Senator Woo: So a carbon tax applied on energy costs, assuming that they are fossil fuels, would apply to a fairly small portion to your total input costs?
Mr. Maynard: Yes.
Senator Woo: That is what I am trying to get at, to understand the competitive impact on the farm of a carbon price specifically on energy inputs, and mostly for fuel inputs.
Mr. Maynard: I should clarify that to an extent. The carbon tax will increase the cost of our transportation, for example. We pay for the transportation costs of our milk from the farm to the processor. A carbon tax will increase that cost. On the purchase of fuel and electricity, it may have a smaller effect, but when I talk about fertilizers also, that will have an effect, too.
I could not tell you off the top of my head, but as far as the fossil fuels go, it is 15 per cent. As far as the increase costs that will come because of transportation of our product and the feed coming into the product, as I said, I spent $250,000 on feed coming in. That is all trucked in. That will increase the cost there.
Senator Woo: There are other inputs with embedded carbon costs that will be taxed, which will be passed on to the farmer. I understand that.
Mr. Maynard: Yes.
Senator Woo: On the comparative impacts based on imports, you mentioned that in your document. Surely you are quite well protected from imports already. Would that not be a relatively small concern compared to other industries that are much more open to competition?
Mr. Maynard: Yes, but it is still a concern. Mr. Leduc is our trade expert.
Mr. Leduc: We estimate about 10 per cent of our domestic consumption of milk and milk products is supplied through imports of milk and dairy products at this current stage. That doesn't include the additional access that was conceded to the European Union that will come into play in the coming months.
With the disengagement of the U.S. from the Trans-Pacific Partnership and moving into the renegotiation of NAFTA, those open a Pandora's box of what might be the outcome of those. There was some access conceded as part of the TPP. That access will not come into play, but at the same time, it is difficult to prejudge what the outcome of the NAFTA renegotiation might be.
We also have to take into account, as Canada is preparing to enter into this renegotiation, that when you are trying to assess whether the Canadian dairy sector is competitive with respect to the U.S. dairy sector, you have to look at the broader picture. It is not just the price of milk at the farm gate level; it is also the significant level of support the U.S. agricultural industry is benefiting from. It's over $100 billion a year through the farm bill. Add to that the irrigation programs that provide billions of dollars in reduced costs of production. That is a benefit to the agriculture and dairy industry in the U.S.
If you were to add to that a carbon tax on top of milk or agricultural products in Canada, and not have the same tax in the U.S., that obviously affects the competitiveness of the Canadian industry versus the U.S. industry.
Senator Woo: Thank you for your answer.
[Translation]
The Chair: I have two quick questions for you. Are the greenhouse gas emissions from the dairy industry comparable to swine liquid manure or chicken or turkey manure? Is there a difference or are they roughly the same in terms of emissions?
[English]
Mr. Maynard: I don't know whether I have compared the emissions. If you are talking about a tonne of manure, whether it be chicken, swine or dairy manure, I would think that the dairy manure would probably be less, because dairy manure tends to be mixed with some kind of bedding whereas it is not in swine. Swine manure tends to be more intense.
The other aspect of it is that in the manure storage aspect of it, if you look at a lagoon, a dairy lagoon will always harden over the top. There is a certain amount of gas captured because of that, whereas a swine lagoon, for example, always has moisture. With swine manure, the solids settle; with dairy manure, they rise. There is less greenhouse gas because of the management of the manure in that aspect of it.
[Translation]
The Chair: In the last 50 years, the feed given to dairy cows has been changed continually owing to new technologies. Could that be a factor contributing to the increase in greenhouse gases?
[English]
Mr. Maynard: It is a factor that has led to the decrease in greenhouse gases, not the increase. We have more productivity per acre of land now than we had in the past. We have more productivity per unit of cow than we had in the past. That cow will produce a certain amount — the same answer as the first question — of methane just for living and breathing. The more production we can get out of that cow from that unit, the greater the efficiency we have and the less greenhouse gas emitted from that.
We mentioned in our summary here about genomics and better breeding of cattle. We are on the cusp of being able to pick out breeds of cattle — also down to the individuals that are more productive than their siblings. The future is to know that information and use the amount of information we have. As far as data, it's mind-boggling now. How we use that is a challenge we have, but we are working on that, as Mr. Leduc said, through ongoing research. That is our future, and we want to continue to have less of an impact on the environment.
[Translation]
The Chair: I would like to add that I was raised on a farm. Fifty or sixty years ago, cows ate hay and some grains. Now we don't really know what cows eat. I visit large farms regularly and I can tell you that the odour near the silos is not the same as it was when I was a child.
In conclusion, I will give the floor to Senator Mercer.
[English]
Senator Mercer: I will continue with the discussion of manure for a moment. I have had the privilege to visit a number of feedlots over my term on this committee. One of the most interesting feedlots I visited in Western Canada was one where they harvested the manure from all the animals and then turned it into an energy source that fed back into a hub to run the farm, or the energy went back into the grid and they sold it to the power company.
Have you looked at that as a potential complement to your Dairy Farms + program? I recognize that many dairy farms are much smaller than the feedlots that I visited because of the way we are structured, but there are some larger dairy farms that might take advantage of that.
Mr. Maynard: Yes, most certainly there are digesters. Our former president, Jacques Laforge, who is now the CEO of the Canadian Dairy Commission, has a biodigester on his farm. Our environmental award winner two years ago, Mr. Korb Whale from Alma, Ontario, has a digester on their farm. There are some here. George Menzies on the Quebec-Ontario border has a digester.
It is all economics. There are few in Quebec because the cost of power in Quebec is four and five cents, so the economics are not there.
The other thing with digesters is that manure is a wonderful base for a digester, but in order to get energy out of it, you need an off-farm source. You need either fat from restaurants, and Jacques Laforge is using products from McCain's french fry plant in Grand Falls, where he lives. They are putting it into the digester instead of having the waste from the potato processing lines and the dough lines and some of the other things that McCain's does there and chicken awful. It is all economics.
Senator Mercer: These are the creative stories that we need to hear, that there is good news out there. People are doing good things.
I want to switch topics slightly. Canada and the European Union recently signed the Comprehensive Economic and Trade Agreement, and the implementation of this agreement will increase access to the Canadian market for European cheeses by close to 2 per cent. Do you think that the carbon pricing could undermine the competitiveness of Canadian cheeses vis-à-vis European cheeses?
Mr. Leduc: That is a good question. My first reaction to that question — and I will not necessarily link it to carbon pricing — is that these are cheeses that will be coming from the European Union, which is another grouping of countries, that, like the U.S., benefit from a huge level of support from the European Union. We are looking at a common agricultural policy with a budget of about $55 to $58 billion euros per year in support of agriculture. That is a major factor affecting the competitiveness of the Canadian dairy sector in comparison to the EU.
Senator Mercer: This is a problem that Canadians have in the entire sector, namely, that our competitors are all subsidized in one way or another. You have made reference to the Europeans and that is true. The bottle of wine from France that I bought at the liquor store is subsidized in one way or another by the government of France.
We were recently in the United States. When I brought up the dirty word of "subsidies,'' I was told that there were no subsidies; there were "risk-management payments.'' As I have said many times at this table, the most important piece of equipment on any American farm is the mailbox, because that is where the money comes in from the government through their risk-management program. A subsidy by any other name is still a subsidy.
I will go back to the European Union agreement. Are the compensation programs proposed by the federal government sufficient to offset the potential increased production costs owing to carbon pricing?
Mr. Leduc: Let me first respond to your comment about subsidization in general. I think we need to recognize that agriculture, generally speaking, around the world, is heavily exported by governments, in part because agriculture plays a strategic role in our respective economies. I think there is a place for support. That support, I think, is required in Canada. We do in dairy benefit from a regulatory support by allowing the industry to get organized under the supply management system.
To address your question about carbon pricing from a European perspective, I am probably less concerned from a European perspective than I am from a U.S. perspective, especially with the disengagement from the U.S. government from the Paris Agreement, for example. I don't know what the U.S. will do with respect to meeting its commitments from greenhouse gas reduction, but it is concerning.
As for the compensation package, let's be clear. This is not a compensation package. It was announced late in 2016 that the federal government would provide a transition program. So we should not look at it as compensation for any of the negative impacts that will arise as a result of the implementation of the CETA agreement.
As we have said, we think it is a good step in the right direction, but we believe that if we want the Canadian dairy farms and the Canadian dairy sector as a whole — because there is a portion of that $350 million envelope that goes to the processing sector, we think additional dollars will be needed in the future.
Senator Mercer: I am glad we got that on the record.
The Chair: Thank you very much Mr. Maynard and Mr. Leduc, for appearing here today. This is very interesting for the members of this committee.If you have anything else to say to the committee, please send it to the clerk. Thank you very much. Now you can go back to your farms.
Mr. Maynard: We have our downtown dinner going on today on Sparks Street. We had breakfast this morning and we have lunch. You are more than welcome. Please come by and share some of our products and appreciation for Canadians to continue to support our products. We hope to continue to provide them for Canadians.
The Chair: Thank you very much for the invitation.
(The committee adjourned.)