Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 31 - Evidence - Meeting of June 8, 2017
OTTAWA, Thursday, June 8, 2017
The Standing Senate Committee on Agriculture and Forestry met this day at 8:04 a.m., in public and in camera, to continue its study on the potential impact of the effects climate change on the agriculture, agri-food and forestry sectors.
Senator Ghislain Maltais (Chair) in the chair.
[Translation]
The Chair: Today, the committee is continuing its study on the potential impact of the effects of climate change on the agriculture, agri-food and forestry sectors.
[English]
My name is Senator Ghislain Maltais from Quebec, chair of the committee. I would like senators to introduce themselves, beginning on my left.
Senator Beyak: Lynn Beyak, Ontario. Welcome.
[Translation]
Senator Tardif: Claudette Tardif from Alberta.
Senator Pratte: André Pratte from Quebec.
Senator Gagné: Hello, Raymonde Gagné from Manitoba.
[English]
Senator Woo: Yuen Pau Woo from British Columbia.
[Translation]
Senator Petitclerc: Hello, Chantal Petitclerc from Quebec.
[English]
Senator Doyle: Norman Doyle, Newfoundland and Labrador. Good morning.
Senator Oh: Victor Oh from Ontario.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Ogilvie: Kelvin Ogilvie from Nova Scotia.
[Translation]
The Chair: I wish to inform the committee that, after we hear from our two groups of witnesses, we will proceed in camera for 10 minutes or so to adopt the budget of potential expenses for the fall.
[English]
This morning, we are pleased to welcome, from Soy Canada, Jim Millington, Director, Market Development; and Chris Masciotra, Director, Corporate Affairs. Please proceed with your presentation.
Chris Masciotra, Director, Corporate Affairs, Soy Canada: Thank you. Good morning, honourable senators. It is a pleasure to be invited here today this time to share information about the impact of climate change on the Canadian soybean sector.
First I'll begin with a quick background of Soy Canada and the soybean industry. We are the national association representing the full soybean value chain in Canada. Our members include producer groups representing farmers from across Canada, seed development companies, soybean exporters, processors and other industry affiliates. Soy Canada facilitates industry cooperation and represents the industry on domestic and international issues affecting the growth and development of the sector.
The Canadian soybean sector has experienced tremendous growth in recent years. Over the last decade, seeded area has grown from 3 million acres to 5.5 million acres and is expected to grow further to 10 million acres by the year 2027. Production has almost doubled over the same period, climbing to 6.4 million metric tonnes in 2016, and exports have increased by over 250 per cent since 2006. Last year, Canada exported roughly 4.8 million metric tonnes of soybeans and soy products valued at over $2.8 billion.
The economic contribution of our industry to the Canadian economy is also very significant. In 2016, Soy Canada completed an economic impact study which identified that, in 2014, the Canadian soybean sector contributed over $5.8 billion to Canada's GDP. Our sector is both directly and indirectly responsible for over 45,000 full-time and part-time jobs.
Global demand for food-grade soybeans, commodity soybeans and value-added soy products continues to grow at a very strong pace. Demand for soy protein is increasing, and Canada is well positioned to be a reliable supplier to both domestic and international markets.
Our work at Soy Canada is to enhance the competitiveness of the Canadian soybean sector by removing tariff and non-tariff barriers related to international trade, addressing market access issues, supporting market development activities and coordinating research and innovation while promoting our industry at home and abroad.
I'll now pass it over to my colleague.
Jim Millington, Director, Market Development, Soy Canada: I'll speak specifically about sustainability, climate change priorities, carbon pricing and our competitiveness.
Soy Canada acknowledges the need for government to address climate change and to reduce greenhouse gas emissions through policies and regulations.
Soy Canada also recognizes the importance of resource efficiency to lower costs and greenhouse gas emissions without the need for government policies and regulations such as carbon pricing.
Soybean production has proven to be a favourable and environmentally sustainable source of protein because of high protein quality, nutritional value and the efficient use of land, water and energy. Soy uses far less water than other protein sources, which ultimately saves more than 4 million gallons of water for each tonne of soybeans produced.
One of the key benefits of growing soybeans in a traditional crop rotation is the ability for soybeans to remove nitrogen from the air and return it to the soil by the action of soybean root nodules and soil bacteria.
Further, soybeans produce 161 kilograms of usable protein per acre of farmland, which is significantly more than all other forms of complete protein. When comparing land impacted by production and end product, soy protein offers a protein solution that is 17 times more effective than alternative proteins.
Soy Canada is an active participant on the Canadian Roundtable for Sustainable Crops, which is an industry initiative led by the Canada Grains Council. The CRSC will soon be publishing a 2016 carbon study, which will establish a definitive reporting platform on the sustainability metrics of Canadian crops. The data and information collected through this study will assist in identifying our natural capital strengths. Soybeans are one of the 10 crops studied, and they will figure prominently in this final report.
It's important to note that the Canadian soy industry relies heavily on international trade. Approximately 70 per cent of our domestic production is shipped overseas. As a result, it's important that the government regulation related to climate change strike the right balance between creating the conditions to improve our natural capital while ensuring our industry is equipped to compete internationally and deliver on the recommendation to unleash the growth potential of the agricultural sector identified by the Prime Minister's Advisory Council on Economic Growth.
The global marketplace for soy is highly competitive for raw soybeans as well as the processing derivatives, including protein meal, vegetable oil, renewable fuels and other bioproducts. Many of the jurisdictions where Canadian soy exporters compete do not have carbon pricing mechanisms in place, which, in some cases, may provide them with a competitive edge.
Our members are of the view that practical opportunities exist for the soybean sector to assist in Canada's transition to lowering greenhouse gas emissions while maintaining our global competitiveness.
In the last 35 years, Canadian soybean growers have made substantial improvements in environmental practices. Since 1981, their energy use has decreased by 26 per cent, and the net greenhouse gas footprint per unit of soybean output has also decreased by 17 per cent.
Both private and public sector research and development have led to an increase in average soybean yields, from 40.1 bushels per acre in 2005 to 44.1 bushels per acre in 2016, an increase of 10 per cent. With the advent of new breeding techniques, this rate of improvement will increase and the varieties will move further north in Western Canada.
Canadian soybean growers practice sustainable methods in four areas. First is conservation tillage. Reduced tillage and zero tillage are now common practices with many soybean growers in Canada. These techniques help to reduce the use of fossil fuels, while improving erosion control and preventing soil compaction.
Number two is cover crops. Many Canadian farmers overseed fallow fields with protective, nutrient-building cover crops that conserve moisture and control weeds.
The third area is responsible pest management. Integrated pest management and economic thresholds help farmers use pesticides sensibly.
The fourth area is precision agriculture. Pesticides, fuel and fertilizer are being used more efficiently as farmers adopt new innovations, such as variable-rate technology, mobile applications, auto-steer tractors, GPS and yield monitors. Many growers also subscribe to the 4R Nutrient Stewardship practices that optimize the efficiency of fertilizer use.
In conclusion, Canada has one of the best agriculture production environments in the world. Our deep, fertile soil, abundant water supplies and healthy biodiversity are ideal for a thriving, growing industry that sets the global standard for sustainable production.
Canadian soybean growers understand the need to protect and improve our natural capital because our ability to farm profitably and efficiently depends on it. That's why Soy Canada is in the process of developing an industry strategic plan, involving the entire soybean value chain, that will set ambitious but realistic growth targets and will guide the growth of our industry over the coming decade.
One of our chief commitments in this strategy is to be recognized as the global leader in sustainable production of high-quality soybeans. This is a priority for our industry and one that will build on our sterling international reputation.
We thank the committee for inviting us to speak here today, and we welcome your questions and feedback. Thank you.
The Chair: Thank you very much. We will now have questions from senators.
Senator Doyle: You mentioned the importance of competing internationally, which leads me to my question.Given that the new American government appears to be somewhat skeptical about the whole issue of global warming, do you anticipate any rollback, say, in American environmental regulations that might place your industry in a position of unfair competition?
Mr. Masciotra: The situation south of the border is something that the soybean sector is very much keeping its eye on, not only when it comes to environmental regulation but certainly trade and the forthcoming renegotiation of NAFTA.
Our view here in Canada is to ensure that the Canadian conditions are such that our value chain can get products to Canada and international markets. The U.S. is a large customer of Canada's, so I think the answer would be that regulation in Canada needs to ensure that our value chain can still get our products to market, irrespective of what is done in the United States.
Senator Doyle: In terms of reducing GHG emissions in the agricultural sector, how do the planting, cultivation and harvesting of soybeans compare with wheat or corn, for instance?
Mr. Millington: Certainly, the equipment is different for each crop. Soybeans use similar equipment to the cereal crops, which is different from corn. One of the main benefits, as I said in my remarks, of growing soybeans is the action of the soybean root nodules, which will take nitrogen from the air and return it to the soil. It creates a very healthy environment for the following crop. As that nitrogen breaks down in the soil, it is returned to the soil, so the following crop receives the benefit from that. Also, when soybeans are planted, very little nitrogen is required on top of the soil.
Senator Oh: Thank you, gentlemen, for very good information. You mentioned earlier that you were also on the Prime Minister's Advisory Council on Economic Growth. The new government now has almost two years, halfway through their mandate. Is there any concrete sales promotion helping you on international trade to your important industry?
Mr. Masciotra: The big thing that our industry is watching for right now, I would say, would be the forthcoming agriculture policy framework set to be released next year. The programs in this policy framework will really tell us how much importance this government is placing on our ability to get products to market.
The current Growing Forward 2 agriculture policy framework has served our industry very well. The AgriMarketing Program, specifically, has enabled our industry to get products to market and to promote high- quality soybeans in markets across the world.
In 2018, when this policy framework is renewed, we want to ensure that we have a suite of programs that does exactly that and allows for the expansion that our industry is currently experiencing. I think next year will be a big year to see the direction this government in going in terms of agriculture.
In terms of the Prime Minister's advisory council, we saw a report tabled by Dominic Barton's advisory group that focused on growth potential sectors, agriculture being one of the ones specifically highlighted in the report. One of the primary recommendations in there, senator, as you know, is the ability to get our products to market and unleash the vast growth potential in the Canadian agriculture sector. As we stated earlier, Canadian exports have grown by 250 per cent in the soybean sector alone over the last decade, and it's poised to grow further. We want to make sure we have the resources and programs that can help us continue to grow and expand.
Senator Oh: I travel extensively in the Asia-Pacific Rim, the new emerging markets. Every time I ask, "Where do you buy your soybeans,'' they say Canada. Can you tell us what percentage of soybeans we produce in Canada are exported to the Asia sector and how much is going to the south, to the U.S.?
Mr. Masciotra: It varies depending on the types of soybeans that are exported. Canada is a large supplier of non- GMO food-grade soybeans that will go to those specialty end use markets, such as Japan. They are our largest food grade export food market. In terms of commodity soybeans, we ship a lot of them to China as well as to the United States. China is an increasingly big importer of Canadian food-grade soybeans as well. In fact, 2016 marked one of their highest years of importing food-grade soybeans for specialty end use. We're looking to build on this potential, and we're keen to see what next year has in store.
Mr. Millington: I've got some numbers to share with you. In 2016, our exports to the United States were 533,000 metric tonnes. Our total Canadian crop was about 6.5 million tonnes. Asia is also a large trading partner, as Chris mentioned. Japan buys the majority of our food-grade soybeans. However, in terms of international trade, our major trading partner is China. China is our number one importing country. In 2016, they imported roughly 1.7 million metric tonnes.
Senator Oh: Thank you. That is good information.
Mr. Millington: We are also participating in Minister MacAulay's trade mission to China in November this year.
Senator Oh: This year or last year?
Mr. Millington: This year coming.
Senator Oh: We were there last year.
Senator Pratte: Thank you for appearing here this morning. First, I'd like to know what potential risks you see from climate change itself to soybean producers.
Mr. Millington: The carbon tax will potentially be a big issue for the soybean sector. We have yet to understand fully how that tax will impact growers and how it will trickle down to the farm level. That's a major consideration for the industry.
Senator Pratte: I was talking about climate change itself, the changes in the climate; the fact that the weather will get warmer and so on. I know there are some opportunities.
Mr. Millington: Yes.
Senator Pratte: More than risks?
Mr. Millington: We see tremendous growth in the industry, and we don't see climate change in particular being a barrier to growth.
Senator Pratte: Okay. Going back to the carbon tax, because of the specificity of the soybean itself, as you described — that is, minimal use of nitrogen and so on — how would the carbon tax affect your industry per se?
Mr. Millington: That's a really good question, senator. I'm not sure at this time how the carbon tax will trickle down to the grower level and what the impact will be in terms of cost per acre for an average Canadian grower. Chris, do you have any insight?
Mr. Masciotra: As my colleague said, it's something that industry is very engaged in. As part of our involvement in groups such as the Canadian Roundtable for Sustainable Crops, we are engaged in these studies to gather the data, the information and the right metrics in order to get answers to those exact questions. As I say, we're very much involved in those processes right now.
Senator Pratte: Is it possible that it could be an advantage for your production compared to other productions?
Mr. Millington: Quite possibly. It depends on how the growers receive credit for the carbon that's removed from the air through the growing of crops. At this stage, we're just not sure.
Senator Pratte: Okay. Thank you.
Senator Ogilvie: The soybean story has been a very successful one, as you've indicated. I have a couple of questions for my personal information to inform me better on it compared to other crops.
You didn't mention specifically but you alluded to the rhizobium bacteria that are symbiotic with soybean production. I have a couple of technical questions in that regard. Do you inoculate the fields in addition to relying on the natural development as part of the crop cycle?
Mr. Millington: As a rule, most growers do inoculate their seed before it goes into the ground, yes.
Senator Ogilvie: So it's a one-time application and before seeding?
Mr. Millington: Correct.
Senator Ogilvie: Okay. Now, in terms of the impact of the bacterium relative to the crops that do not have the symbiotic relationship and require entirely added nitrogen beyond ambient levels, do you also add some nitrogen fertilizer in addition to the inoculation?
Mr. Millington: As a general rule, soybean growers do not. However, if a particular grower wishes to increase his yield beyond average, then they certainly will apply nitrogen through the growing season. As a general rule, it's not applied.
Senator Ogilvie: In those cases, would it still be a fraction of the nitrogen fertilizer applied to something like corn per acre?
Mr. Millington: Yes. It's a very small percentage compared to the other crops.
Senator Ogilvie: So there's a very significant reduction overall in terms of the artificial energy demand?
Mr. Millington: Absolutely. That's one of the reasons that we're so passionate about soybeans, because, compared to the other crops, it is a very sustainable method of producing protein.
Senator Ogilvie: In association with Senator Pratte's question to you, it will be fascinating to see how the various carbon taxes and cap and trades are applied, because we've already heard of a number of different situations with respect to agricultural production and whether or not there will be any capacity to recognize differences as opposed to the normal bureaucratic approach of an easy across-the-board approach to taxation. This will be an interesting one to follow because you have a clearly and totally scientifically understood differentiation between other crops.
Mr. Millington: Yes. That's the work of the Canadian Roundtable for Sustainable Crops. In their study, which will be published later this year, as I mentioned, soybeans will figure prominently. It's one of the 10 crops studied in that carbon study.
Senator Ogilvie: It will certainly be something to watch. Thank you very much.
[Translation]
Senator Dagenais: I would like to thank our two witnesses. I do not want to discuss the carbon tax again, because we know that could pose an issue for competing with our neighbours to the south. That said, I want to talk to you about new technologies.
You said there are new technologies to fertilize soybeans. Do you know if all growers use them? Will it be more difficult for the growers who are not using them?
[English]
Mr. Millington: Growers are very receptive of new technology. Soybean growers in particular are early adapters for new technology. As a general rule, though, about 50 per cent of growers will adopt new technology quickly. It's to their benefit, to improve their efficiency on the farm, that they use this technology.
[Translation]
Senator Dagenais: And for the 50 per cent who do not use it?
[English]
Mr. Millington: Those will just be conventional growers who are still producing a very good crop. However, they won't be quite as efficient as their neighbours who are utilizing the newest technology.
Senator Woo: Thanks for your testimony. You alluded to soy crops being viable further north, presumably because of breeding improvements. Is it also a function of changing climate and temperature, and can you give us an indication of how much acreage is involved and what the potential growth might be in the years to come?
Mr. Millington: Our Canadian crop right now is grown on 5.5 million acres. When soybeans first came into Canada, the soy plant is naturally a warm-season crop. It entered into Canada in southern Ontario. It's been slowly progressing further north. We have crossed a threshold where it's now into Western Canada.
Because of the latitude of Western Canada, this year we're expecting 3 million acres alone in Western Canada. As we said in our opening comments, the total Canadian crop is going to double within the next 10 years. It's a profitable crop for growers in Western Canada to grow compared to other crops.
Senator Woo: Thank you. What is the relative performance of soy as a biofuel compared to corn and other biofuels?
Mr. Millington: That's a very good question, senator. I can provide it for you, but I don't have that off the top of my head.
Senator Woo: Finally, just to echo the comment about this 2016 study on carbon, I hope it's ready in time for our work here because it seems to be a critical input to what we are studying. Please send us a draft as soon as possible.
Mr. Millington: Yes. Thank you.
Senator Tardif: Thank you for your presentation this morning. You've indicated that your sector strives to become a global leader in sustainable development and that new technologies are continually being used by producers. What percentage of your investment is put into research and what type of research projects are you involved in? Do those research projects address topics such as reduction of greenhouse gas emissions in the supply chain?
Mr. Millington: There is a group managed under the Grain Farmers of Ontario, the Canadian Field Crop Research Alliance. They are receiving proposals from the academic institutions across Canada. They are generating a cluster for application for funding.We are supportive of that group, but we are not directly influencing that group.
Right now primarily what they are researching, and historically what they have been researching, is higher yield, disease and pest resistance. To my knowledge, the focus historically has not specifically been on greenhouse gas emissions related to soybeans. As I said, they mainly look at yield and disease and pest resistance.
Senator Tardif: Do you see any opportunity to participate in what's called now the Innovation Superclusters Initiative that the federal government has recently announced?
Mr. Millington: Yes.
Mr. Masciotra: It's certainly an opportunity, but we're really focused on seeing what comes in the next agriculture policy framework. As Jim said, the Canadian Field Crop Research Alliance is an R&D cluster that is funded, in part, through the agriculture policy framework, the current Growing Forward 2 programs. What we would like to see next year is an expansion of that to include more resources to explore those questions.
Jim alluded to some of the initiatives the clusters have been focusing on, but a big priority for us is increasing protein. But, of course, this is also on the agenda. We're hoping for resources to be able to examine this.
Senator Gagné: Obviously, with a warming climate, we will see an increase of droughts and pests. If I remember right, you mentioned in your presentation that you have been developing soybean seed varieties; is that correct?
Mr. Millington: Yes.
Senator Gagné: How do you ensure against the loss of seeds during a large-scale or global crisis? Do you save seed samples so you can make sure you don't lose the genetic makeup of each variety? If so, how do you do that?
Mr. Millington: I have a background in the seed industry. I worked in a variety of elements, specifically in soybeans for six years, and there is the bank in Norway.
Senator Gagné: You use that bank?
Mr. Millington: I believe some researchers do. The USDA also has a germplasm gene bank. I recently submitted a proposal or request for a seed variety from the USDA, so they have that available. The various institutions also have their own breeder seed maintenance programs. In my previous role in the seed industry, my employer was a recognized breeder seed maintainer for specific varieties.
Senator Gagné: Interesting. Thank you so much.
Senator Petitclerc: Thank you very much for your presentation. I am interested in hearing about the role Canada could potentially play in a more global and international way when we think about responsible soy production. I was interested in a report that was made in 2014 by WWF on the growth of soy, and when you think internationally the whole deforestation part of soy is problematic.Could we be a solution for the international challenges when it comes to responsible soy production?
Mr. Millington: Absolutely. I will repeat our strategy. It is to be recognized as the global leader in sustainable production of high-quality soybeans.
Certainly if you compare our production practices in Canada versus Brazil — for example, you mentioned deforestation — we are a shining star on the global stage. When we were in Japan earlier this year, we tried to convey that message to our customers in Japan. Our keynote speaker spoke about the natural capital that we have in Canada and why we are a global leader in terms of our natural capital and the sustainable methods that we use to produce soybeans.
Senator Petitclerc: For my personal knowledge, what is the proportion of soy products in Canada that are genetically modified? I know internationally it's over 70 something.
Mr. Millington: The non-GMO crop is mainly grown in Eastern Canada, in Ontario and Quebec. Roughly 40 per cent of the crop in Ontario and Quebec is food grade non-GMO.
Senator Petitclerc: In Canada?
Mr. Millington: We'd have to do the math. The Western Canadian crop is almost exclusively genetically modified. It's for crushing purposes.
Mr. Masciotra: Part of our strategic plan is a target to increase production not only of commodity soybeans but as well as the non-GMO food grade soybeans. It's on the Soy Canada website.We're in the consultation phase right now to collect feedback from stakeholders to see what they think about these targets.
Senator Petitclerc: Thank you.
The Chair: Gentlemen, thank you very much for appearing here this morning. It has been very interesting for our committee.If you have any other information, please contact the clerk of this committee. It will be a great pleasure for us to receive your comments.
We will now hear, from the Canadian Trucking Alliance, Stephen Laskowski, President. Thank you for accepting our invitation to appear. Please proceed with your presentation.
Stephen Laskowski, President, Canadian Trucking Alliance: Thank you very much, senators, and thanks to the soy guys for bailing me out this morning. You have very nice offices, by the way. On that note, truckers do get lost occasionally. This morning you saw why I don't drive trucks, because I'd never find my destination.
By way of background, the Canadian Trucking Alliance has 4,500 members. Our primary members are the associations from across Canada. Those associations belong to the alliance, hence the term "alliance.'' We represent all kinds of trucks across Canada, from the large corporations to the small, those carrying petroleum products, natural resources and agricultural products.
As a general 60,000-foot overview of our industry, 90 per cent of all the consumer products that move within Canada move by truck. By value, about two thirds of our trade with the United States moves by truck.
In the west, our primary source is natural resources; in the centre, it's manufacturing; and in the far east, it's fisheries.
When our customers catch a cold, we feel it. We are a demand-based industry. Without customers, we don't move.
To give you an idea about the trucking industry and the sense of it from a business perspective, we aspire to be like a Class 1 railway in terms of our financial performance. Their operating ratios will average in between .63 and .65. A good year for a trucking company is .95. It is a very high revenue but low-profit industry.
Next, I'll give you some background with regard to the environmental regulations with regard to trucks. We are very open to new technologies, but the Senate has to understand that, for the foreseeable future, diesel engine will be the source of propulsion for our industry. It's not that we're averse to trying different engines; it's just that the reality is that is the engine that will move our loads for the foreseeable future.
With regard to environmental regulations, we've been regulated since the nineties with regard to air quality emissions. Since 2010, the EPA and Environment Canada calls it the near zero emission engine. That's with regard to air quality emission, so smog and particulate matter.
With regard to greenhouse gas and carbon emissions, we are the only freight mode compared to the marine, the air and the railway sector that are regulated with regard to carbon emissions. The first set of regulations came into force in 2014. The second will come into force next year in 2018 and be phased over a seven-year period.
It's important to understand what, really, these regulations are. They really are equipment regulations with regard to specific add-ons or technologies. You set an emission target, but what you are really setting with greenhouse gas regulations is mandatory equipment installations. There are pros and cons to that approach.
With regard to what we expect with the next phase of the greenhouse gas regulations, it's about 100 million metric tonnes reduction. It is a significant step forward with regard reducing the carbon footprint of the trucking industry.
In the past, environmental regulations, though embraced by our industry, have proved problematic. We have had significant reliability issues with regard to those equipment regulations — so much so that, for example, a trucking company that may operate 100 trucks will now have to operate 120, or 20 per cent more, because the trucks are always breaking down.
We have concerns with the next round of GHG regulations with regard to those reliability issues, specifically with trailers. Trailers will be regulated for the first time going forward. For example, they're going to require air monitoring systems on the tires, which you think is a good thing. It should be a good thing, but a lot of this equipment is made in the United States, and that operates below the Mason-Dixon line where it doesn't snow and it doesn't freeze. We have concerns.
We also had concerns recently with regard to the mixed signal that the federal government sent to our sector when they withdrew the excise tax rebates from such technologies as idle reduction technology. When truckers sleep in their cab, there are environmental technologies, basically a heater or a cooler. Instead of running off the main engine, you run off of those. That fuel used to be tax free from a federal excise tax perspective. The federal government has now decided to tax it. We don't understand the mixed signals here.
Specifically with regard to carbon taxation, the Canadian Trucking Alliance does not oppose carbon taxation. We do understand that, if you are going to reduce something, you may have to price it. The devil is in the details of how you approach this aspect of it.
For example, from CTA's perspective, the pricing mechanism must be structured — in other words: revenue neutral; easily understood and transparent; coordinated on a national and international basis to avoid regional competitive disparities; efficient to administer; ensuring equity between all the freight modes, with revenues being ploughed back into the industry to accelerate investment in industry adoption of environmental solutions.
When considering carbon-pricing mechanisms, it is essential that the government, at all levels, recognize that Canada and the Canadian supply chain must compete globally. Those companies engaged in highly competitive international commerce need to be given full consideration.
Fuel is either the first or the second cost with regard to a trucking company. Obviously, we support carbon regulations because, if we can reduce our fuel consumption, we'll reduce carbon. But it is also a pricing mechanism in our sector. There are two components to pricing in trucking. One is the basic freight rate. One is what, in essence, is called the fuel surcharge.
The carbon-pricing mechanism, if handled properly, could be captured in that system. If not, it will create supply chain issues. It will obviously cause disparate rates between Canadian trucking companies and American trucking companies because we know full well that, at least during this regime in the United States, you will not see carbon pricing in the United States.
As I said previously, carbon taxes must be applied to all modes. We see no reason to exempt anyone from it. It's either all in or all out.
Also, the government must have a sound policy for carbon pricing. As I mentioned before, with the diesel engine being the primary source of power for our industry, to price diesel upwards to incentivize other alternatives is not an option for our sector.
If we are going to carbon price our sector, carbon price diesel, there must be a sound policy reason. The only policy reason we can see is to provide that money back to our sector, to provide money for us to purchase those components I described over the next seven years.
Thank you for the opportunity, and I look forward to your questions.
[Translation]
Senator Dagenais: Thank you for your presentation, Mr. Laskowski. I worked on the roads for 24 years, but truckers did not like me that much since I was a police officer at the time. We had to check the bills of lading, invoices and so forth.
I am perfectly aware that trucking is the backbone of the economy and that an excellent road network is needed. Unfortunately, if we look at Montreal, for example, the trucks are stuck in traffic. So it is extremely expensive to send a truck onto the island of Montreal. Bypass roads are great, but there are not enough of them. If we want to reduce pollution and help the economy, we need a better road network.
If you could ask the federal government to improve infrastructure, what could it do to help trucking? Imposing a carbon tax to reduce pollution is all well and good, but if trucks are stuck in traffic in Toronto or Montreal, that does not help matters.
[English]
Mr. Laskowski: Good point, senator. If you look at the United States — and I mentioned this earlier about a policy — it's all well and good to introduce charges, whether it's a carbon tax or any form of taxation, but what are you trying to disincentivize or what are you trying to use those revenues for? In the United States, fuel taxation in general and registration fees for trucks do not go into general revenue. It's designated specifically for infrastructure projects to deal with congestion. Congestion leads to pollution. Idling trucks and cars are inefficient, and inefficiency leads to more pollution.
The federal government does need a strategy, along with the provinces, to look at what they do with the fuel taxes they get, the carbon taxes that they're introducing in the various provinces, to not only look, as I said, towards technology and investment but also into reducing congestion on the roads. Montreal is an excellent example of that, and there are examples across the country of where investment is required. There has been negligence on the part of governments in Canada for probably 20 or 30 years with regard to infrastructure. We're way behind the eight ball. So now it is time to set priorities and show leadership.
It's going to be tough because we understand that dollars are limited, but if you go to Montreal, you don't move. It's not good for the economy. It doesn't say, "We're open for business.'' So the issue here is that Ottawa and parliaments across Canada are going to have to look at infrastructure projects with regard to how we can clear up the roads faster.
It may also involve looking at transit alternatives to get some of the cars on those roads off the roads, but it needs to be strategic, not political.
Senator Oh: According to the Canadian Trucking Alliance, CTA, the use of engines powered by natural gas could reduce greenhouse gas emissions by 20 to 30 per cent. How many trucks of your 4,500 members have been using this application? How effective is it?
Mr. Laskowski: Senator, I don't have the stats, but, if I were going to guess, less than 2 per cent. That doesn't mean that natural gas engines don't work, can't work, aren't a viable alternative. The issue relates to infrastructure. The issue relates to capital cost upfront.
It also poses a challenge for fleets to introduce natural gas. Many of them have their own maintenance shops. It's very different operating a natural gas engine for those maintenance facilities. So there are a whole bunch of challenges associated with it.
The Canadian Trucking Alliance and its provincial association members, specifically in Ontario and Quebec, have been working with governments to provide incentives in a planned transition. Not all fleets can transition to natural gas, based on the infrastructure restraints, but there are some opportunities.
Although you're always loathe to go to government with your hand out and say, "We need more money,'' here is an excellent opportunity for governments to de-risk early investment. It's probably about a $60,000 to $70,000 per unit price spread between a diesel tractor and a natural gas tractor. When you're looking at an operator in a slim-margin business, those are significant risks to take on along with the challenges.
I think this is an excellent opportunity for the provinces, the federal government, the trucking industry, the manufacturing industry and, quite frankly, the natural gas suppliers to all work together. But there needs to be a plan. Simply giving the trucking industry money probably isn't the only thing to do. It needs to be planned and thought out and strategically developed, but there are significant opportunities there.
Senator Oh: There is a company from Mississauga that came from China that is investing in this LNG for trucking. They built two stations, one in Vancouver, B.C., and one in Ontario, but, somehow, it couldn't take off. They didn't get any support.
Mr. Laskowski: I don't know specifically; I can't comment on the support element. I would say that there are significant challenges. The price of diesel has come down significantly. Businesses will look at things as an opportunity. If natural gas is an opportunity to reduce their operating costs, they'll look at it. As diesel now is just above a dollar a litre and natural gas provides less of a competitive incentive to go that direction, it's a challenge.
Senator Beyak: Thank you for your presentation. I'm with you on diesel and fossil fuels. We're not going to be flying our military jets or running our ships on anything but fossil fuels for decades to come, in spite of our best efforts.
The climate change agreement says $100 billion a year to developing countries. I wonder how much more wisely we can use that to feed people and eradicate disease. What are you doing with other organizations and with the federal and provincial governments to put forward your excellent suggestions, because we're not on this side of the populace.
Mr. Laskowski: There have been a number of efforts in various provinces to address whether it's natural gas engines or incentivizing some of the equipment I was mentioning. I think there's much more of a better understanding of our sector and its willingness to step forward and do the right thing, while understanding the limitations of the technology we're facing. I think perhaps a decade ago people thought let's flip a switch and we can go buy electric trucks. Show me where there is one.
I think there is a better grasp of the reality we face out there. Quite frankly, now it becomes political leadership. Sometimes now investing in certain aspects of the economy isn't seen as a sexy thing anymore, but it's the right thing to do. We'll see.
Senator Beyak: In the Far North, our indigenous people depend on fossil fuels as well. So good luck. Keep up the fight, because I do believe we have to look at all alternatives.
Senator Woo: To follow up on the natural gas engine question, is it correct to say that natural gas engines in terms of performance have overcome the technical obstacle so there is no performance concern, or is there still an issue around that?
Mr. Laskowski: There are zero performance concerns outside of one issue, namely, higher horsepower engines. In the United States, there would be very little issue because of their weights and dimensions. Trucks are governed with respect to how long and how heavy they can be. In Canada, we have a much more progressive system that allows for heavy loads to deal with some of the natural resources and heavy-based economies we have here in Canada. There are limitations on natural gas engines available in the market to pull those heavier loads.Outside of that, there are no technical issues standing in the way of their introduction into the trucking industry.
Senator Woo: That's helpful. The principle constraints are the upfront capital cost of getting a natural gas truck and the infrastructure that's available to support these sorts of vehicles. But there is a savings, of course, using natural gas over diesel, albeit less because of the low price of diesel currently. Presumably, the idea with a carbon price would be to shift some of the incentive towards natural gas.
Give us a sense of what the differential is in terms of operating costs. We'll have to set aside infrastructure for now, but just on the pure operating costs of a diesel truck versus a natural gas truck, how much savings are you getting?
Mr. Laskowski: It really depends on your marketplace. I have seen several business models where this can make sense, basically what we define "as return to base operations.'' That means you know where you're leaving in the morning and you know where you're coming back at night. You know what you're bringing and you know what you're bringing home with. Most trucking companies don't know that. They know what they're leaving with and they know where they're dropping it off, but then it's a struggle to find freight back home because you don't want to go home in an empty truck.
With the business model for return to base models for natural gas, even with the diesel prices at this rate, you can make a sound business argument for it. But you still face the challenges of integrating that technology into your fleet, and you also face a challenge of what I call the boat anchor syndrome with natural gas. There's no residual value for these vehicles because there's no market for them right now. At the end of a five-year cycle, most trucking companies will sell in the after market or overseas. However, now you have no residual value for these trucks.
There's a good business case for these in a starting market. Governments should play a role in that, but we also need to understand what those limits are and there are limits to them.
Senator Woo: That's helpful, but can you give me an estimate of the per kilometre cost comparison between diesel and natural gas?
Mr. Laskowski: I can get that for you, senator. I will follow up with the clerk and provide that. We've actually performed those studies. It can be significant.
Senator Woo: That would be very helpful. Thank you.
You made a strong point about the need for all modes of transportation to be subject to the carbon price equally. That makes total sense to me. The fact that you made the point raises a question in my head. Is there any notion that different modes might not be subject to the same penalty?
Mr. Laskowski: The discussion paper released earlier this month on the federal carbon tax perspective basically put the trucking industry and the railway industry together. We'll be treated the same. There is a proposed difference for the marine mode. Basically, any interprovincial or international marine would not be subject to carbon taxation. The paper makes recognition that the air freight industry is currently not taxed from a carbon tax perspective. It recognizes issues introducing such a carbon tax on that mode. It says we should try to do something about it, but it doesn't commit to doing something about it.
Senator Woo: That is something we should follow up on, Mr. Chair.
Senator Tardif: Thank you for your presentation this morning. You indicated in your brief that the Canadian Trucking Alliance is not conceptually opposed to carbon pricing, although, given the choice between a carbon tax and a cap and trade system, the alliance would prefer the former. Can you explain why?
Mr. Laskowski: It goes to the visibility and the transparency of the system. At the end of the day, as I explained before, there are two components to pricing in trucking. One is the general freight price. For most carriers, there is a second component called a fuel surcharge. It developed over time when fuel spiked in the mid-2000s. Instead of a gradual price hike, it started doing mad swings. You still see it today.To deal with that in terms of dealing with long- term contracts in our sector, that's why they broke the components out to a general price to move the freight and then a second component called a fuel surcharge.
A carbon tax is easily captured in that second component. Carbon pricing, although somewhat captured in there, depends on the system. It becomes less transparent to our customers and they don't understand the element. It's an issue of transparency and the ability of the supply chain to communicate, especially to foreign buyers in the United States, what exactly is happening here.
Senator Tardif: Some provinces are using cap and trade; others will use carbon pricing. How do you view this lack of harmonization, and what effects may that have on your industry?
Mr. Laskowski: It's problematic. Ideally, we would have had a pan-Canadian solution. It doesn't matter where you operate. It's the same application; it's the same approach. It levels the playing field in all provinces and it's just easier to administer. This current system and the road we're going down adds challenges.
Senator Tardif: Thank you.
[Translation]
Senator Dagenais: Mr. Laskowski, correct me if I am wrong, but I believe American truckers have an advantage over Canadian truckers when they deliver merchandise in Canada. Are you aware of that? What could be done to regularize their presence, if possible?
[English]
Mr. Laskowski: Thank you for the question with regard to competitiveness.There is a system in place beyond the scope of the federal government where fuel taxes are collected in the trucking industry that operates in the two countries and in each jurisdiction. It's called the International Fuel Tax Agreement. It's very simple. It's based on the amount of miles or kilometres you drive in a province based on the provincial, state or federal sales tax rates. Actually, the federal is exempt from it. It's captured and distributed.
Hence the reason why we say if you put taxes in a province, especially at the provincial level, there is no competitive advantage or disadvantage. It's equal. It's based on where you travel. That is why when we have this mishmash of federal systems, provincial systems, not having a provincial system, it creates these pockets of inequity.
I don't like using it all the time, but once the horse is out of the barn, the horse is out of the barn. What the federal government is doing is trying to put a horse back into a barn, and it's going to be messy.
Senator Ogilvie: Mr. Laskowski, you've given us a first-rate overview of a lot of the issues. I'd like to delve into one and I'm not sure how far you want to comment, but driving in eastern North America, the contrast of highway maintenance and operation north and south of the 49th parallel is very notable in terms of the calibre of highways and the approach to maintenance. I just went around northeastern North America, and the seamlessness of highway repair in the U.S. alone, let alone the fact they are repairing the highways, is one thing.
We know that there are fascinating uses of the tax collected. There are very interesting distributions of that tax across the various levels of government, and virtually no accountability with regard to the original historic intended use of those taxes and repair and the consequence of the deteriorating highway infrastructure. The 2 and 20 east of Montreal, I can't imagine what it's like for your truckers. Just driving an automobile — it's a major highway with very noticeable issues, and the way in which we do repairs causes major delays. You've already dealt with Senator Dagenais on the delay in trying to get through and around Montreal causing enormous cost.
Is there any hope of ever bringing the political system to apply the taxes to the originally intended purposes that would enhance not only enjoyment of Canadians generally with regard to travelling but the competitiveness of a major freight transportation system? Really, over the last 30 years, it's a dramatic increase in the use of highways. You gave the figures. Can you make a comment in this area that gives us any hope that there may be recognition of this issue or any particular efforts on the part of the transportation industry to put pressure on governments to enhance the use of the gas tax for highway improvement?
Mr. Laskowski: From our perspective, I've been in the alliance for 20 years and we've been pushing the issue. It's not an issue of what you collect from us; it's where you spend it. It's time to stop always understanding political realities. There's a reason North America has been a competitive place beyond our consumer buying power, and that's because we've had great infrastructure, whether it's railways, ports or roads. It's the backbone of the economy. We've been negligent as a society. It's not this government, it's not the last one, it's been 30 years of it. If we don't, we'll lose our competitiveness.
You're starting to see it with municipal, federal and provincial funds that go into municipal transit projects for the most part. It's a start in the right direction. We're hoping to capitalize on that.
I think you'd like to see hard infrastructure, not buying buses, but maybe if it's going to light rail to improve something, it allows us as an industry to say, okay, that's a start. Now start strategically spending on roads, getting that government mindset down a pathway. It seems to be showing that.
It's going to take leadership. It's going to take provincial leadership, and it's going to take some tough calls. I can remember when I used to have hair and I wasn't grey, cutting a ribbon at a road ceremony with a politician was sexy. It's not sexy anymore. There are other things they want to spend money on. As the senator mentioned, Montreal is a mess; it needs to be fixed. There's money going into there, but my gosh, did we have to get to that state of congestion and crisis to do something? You would hope not. Time will tell.
Senator Ogilvie: Thank you.
Senator Oh: In the U.S., they have a lot of truck bypasses in congested areas. Somehow, we don't have that in Canada.
Mr. Laskowski: No. Because they actually plan, budget and dedicate it. They do a very good job of it. And my colleagues in the United States aren't happy. This is coming from the American Trucking Associations. They are willing to accept higher fuel taxes as long as you spend more on the roads. They're looking at it as a business investment, just like any business would do. They see roads as an investment. Do I have to pay more to get more? Perhaps. But am I going to get more? If they have that commitment from government, business leaders and politicians can sit down and make sound investments.
The reason you see those is because someone in one state decided this is what I want and this is how I want the trucking industry to serve my sector, instead of getting congested in Montreal, to have a bypass, because you don't have to if you don't need to. It's wonderful planning and a proper use of investment.
The reason we don't have that in Canada isn't because we don't have smart planners or good people in government; we didn't put the money forward.
Senator Oh: Agreed. Thank you.
Senator Pratte: You mentioned in your presentation that the regulation on greenhouse gases will reduce heavy truck emissions in Canada by 100 million metric tonnes. Maybe it's something we should know, but do you have any idea what that is relative to the total emissions?
Mr. Laskowski: Of our sector?
Senator Pratte: Yes.
Mr. Laskowski: Again, the percentages, when I was younger I used to be able to rattle this stuff off the top of my head. I believe it's a 20 to 30 per cent decline from our overall sector. At the end of the day, it's important to remember that, as the economy grows, there are more trucks on the road.
Senator Pratte: Of course.
Mr. Laskowski: So it's a target to stay ahead of the curve in terms of reducing our impact.
Senator Pratte: If you find the precise number, would you forward it to the committee, please?
Mr. Laskowski: Absolutely.
Senator Pratte: You also mentioned that if there is a carbon pricing system in Canada — there will be — but you would wish it be coordinated with the national and international, and that is Canada and the U.S. Of course, as you mentioned, the U.S. is not going in that direction. That is something that many witnesses before the committee have mentioned. They would like us, if we go forward, to wait to see if the U.S. also goes forward. The problem I have is it's like we're leaving the choice to the United States. If they never do it, we'll never do it, and that's problematic. Would you comment on this?
Mr. Laskowski: Sure. We are not saying to wait for the United States. We're saying if you're going to tax Canadian trucks, you tax American trucks and figure it out. That's really what we are saying. The response we get to that is, "That is hard.'' Well, it's hard paying a carbon tax too. Figure it out.
Senator Pratte: Is that feasible, do you think?
Mr. Laskowski: I think it's feasible. What is the objective of this discussion paper? Is it to introduce a federal price or is it to get the provinces in line? The answer to that question I can't give you, but if we set up a system where the provinces are collecting it through the IFTA agreement, then our issue becomes moot; the Americans will pay. A federal system — well, we don't really know. The federal system as we're trying to distinguish it has all types of reporting requirements for trucking perspectives. It does not mention if the Americans are into it. In essence, what the paper says is that trucks will now have to report to CRA, which I assume would be either on a quarterly or annual basis, reporting its miles in what's called the backstop jurisdictions. It's a very burdensome administrative matter, but it doesn't mention that foreign trucking companies would have to participate in this. What we're saying is, if we have to do it, they have to do it.
Senator Pratte: Thank you.
Senator Beyak: My question follows up on Senator Ogilvie's about the infrastructure. You're right, it goes back decades. My husband was president of the Chamber of Commerce locally in the 1990s and we did research that the government collected $2 billion a year in gas tax, which was $20 billion over that 10-year period, and put $184 million back into highways. I did prepare a binder for Prime Minister Harper for a TransCanada Highway four-lane from sea to sea. He actually approved it and sent it to the finance minister and infrastructure but, of course, the government changed. Perhaps our committee can help with the infrastructure problem. It doesn't matter who gets the credit as long as the right thing happens. Perhaps this new government could take on that task because it would really fix a lot of things.
Mr. Laskowski: Thanks, senator. The CTA will typically ask provincial associations to name their top two or three projects that would really matter to their members. It's an interesting debate, new highways versus what I'll call refurbished roadways. Most trucking companies will select refurbishment because it impacts their day-to-day operations. New highways are like old railway lines when we built this country; they go nowhere at first because there's nothing there, but the old saying if you build it they will come; it comes, just like railways. Towns out in the west weren't put in the middle of nowhere because they wanted to build a town in the middle of nowhere; they built them near a railway line. The same thing happens with highways.
In the modern market for a trucking company, because they're so competitive, what's the opportunity for me in my investment to improve the routes I'm currently on to reduce congestion, to reduce my driving time, the comfort of my drivers, et cetera. I think we're at the stage now, because we're so far behind, that what would really be helpful is for the federal government to identify those types of projects in all the provinces, because they're everywhere, that could require federal money that will instantly stimulate the economy and make life better for the economy and the average consumer driving on the road.
Senator Beyak: Thank you very much.
Senator Gagné: What incentives would your sector need to switch to lower emission modes of transportation?
Mr. Laskowski: Well, they do it already because, as I said, the trucks themselves are mandated both from an air quality and GHG perspective. But from a carbon perspective, GHG perspective, there's your base level model up to I'll say your gold platinum GHG model. Either is available. It becomes a decision of cost. Is this technology worth it to me? Do I want to try this other technology? How do I want to work it? I think incentivizing those choices to say we will put incentives out for you to move up to that class of tractor, to try it and get used to that technology, is the opportunity we're looking for.
Senator Gagné: What type of policy do you need to get there?
Mr. Laskowski: Typically the best system has been a manufacturing rebate. For example, when I mentioned the auxiliary power units, those are the technologies for driver comfort, they're typically add-on devices. If you went to a dealership to buy a new truck, you wouldn't necessarily get it from them but they would arrange it from a separate provider. That's the type of technology that can be incentivized. This piece of equipment is typically around $5000 to $7000. If you buy it in the next twelve months, the government will take $1,500 or $2,000 off. All of a sudden it becomes, okay, maybe I'm going to try this now. I'll try it. $2,000, I'll give it a go.
As I said before, when you're in a 0.95 operating world where you're dealing with pennies and not dollars, sometimes politicians look at our revenue statements and say, "Oh my gosh, you're in a billion-dollar industry. What are you talking about pennies for? That should be insignificant to you.'' Well, it means the world to some operators. It's that ability to turn the switch on for some operators. All of a sudden they get used to it, they like it and they say this is the investment we should be making and that money goes away. It is incentivizing the right decisions towards the right direction.
[Translation]
The Chair: To begin, let me tell you where I stand: I am an ardent defender of trucking. In Canada, there are four ways of transporting merchandise: by truck, boat, train or air. Public opinion is generally directed at you. You have to comply with the thaw period and watch for the police. In Quebec, there are in fact two kinds of police. Yet we often forget that you are the most important factor in the economy. Industries can produce as much merchandise as they want, but if there is no one to transport it, it will sit in warehouses and those industries will go bankrupt.
I would like to return to something very specific that I have noticed over the years. I drive about 1,200 kilometers per week between Quebec and Ottawa. When I go to the grocery store to buy fruits and vegetables, transportation costs are included in the price of a tomato, but when I buy a car, I have to pay from $1,800 to $2,000 in freight charges. I imagine it is your carriers who transport cars. When you charge freight for cars, do you pay a transportation tax? For example, most imported vehicles to be sold in Eastern Canada go through Halifax. If you transport 10 or 12 cars by truck from Halifax to Quebec City, do you pay tax on the cost of transportation?
When I buy a car, I am charged $1,800 in freight, plus taxes. I do not know if we are being taxed twice for the same thing. That would mean there is a surtax on the surtax, which is a lot of taxes. I expect you are not the ones to blame, but rather that the system requires taxes to be paid twice.
[English]
Mr. Laskowski: I'll answer it this way. A truck may get $1,800 for the whole load, let alone a car. I can tell you that the next time you go to a dealer, you should negotiate that price down because that might be for at least 12 cars, not one. In terms of the taxation, the trucking company wouldn't pay tax on it, but the dealer might pay GST on the service of delivery.
On the issue of double taxation and tax on top of tax, Mr. Chair, we could have a committee hearing and talk all day on that one.
The Chair: Thank you very much for appearing, Mr. Laskowski. If you have more comments to send to us, send them to the clerk. It is very important for us.
Mr. Laskowski: I have the natural gas and the clarification question. I will follow up.
The Chair: Thank you so much. Our witnesses' testimony is very much appreciated.
Mr. Laskowski: Thank you very much, and sorry about this morning, again.
[Translation]
The Chair: Senators, please stay a few more minutes. We will now go in camera.
(The committee continued in camera.)
(The committee resumed in public.)
The Chair: Seconded? By Senator Dagenais. Is it unanimous? Thank you.
Senator Mercer, the clerk and I will defend this proposal to the Internal Economy Committee. Thank you very much.
(The committee adjourned.)