Proceeding of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 32 - Evidence - Meeting of September 21, 2017
OTTAWA, Thursday, September 21, 2017
The Standing Senate Committee on Agriculture and Forestry met this day at 8:04 a.m. to study the potential impact of the effects of climate change on the agriculture, agri-food and forestry sectors.
Senator Terry M. Mercer (Deputy Chair) in the chair.
[English]
The Deputy Chair: I welcome you to this meeting of the Standing Senate Committee on Agriculture and Forestry. I’m Senator Terry Mercer from Nova Scotia, the deputy chair of the committee. I will start by asking my colleagues to introduce themselves.
Senator Oh: Senator Oh, Ontario.
[Translation]
Senator Petitclerc: Senator Chantal Petitclerc from Montreal, Quebec.
[English]
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
[Translation]
Senator Dagenais: Senator Jean-Guy Dagenais from Montreal, Quebec.
Senator Pratte: Senator André Pratte from Quebec.
[English]
The Deputy 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.
For the first panel, we welcome Dr. Brandon Schaufele, Assistant Professor in Business, Economics and Public Policy, Ivey Business School, The University of Western Ontario; and by video conference from Paris we have Dr. Nicholas Rivers, Associate Professor, Public and International Affairs, Faculty of Social Sciences, University of Ottawa. I see that the University of Ottawa has expanded its campus to downtown Paris; good move, University of Ottawa.
Thank you both for accepting our invitation to appear, and I invite the witnesses to make their presentations. Following the presentations, a question and answer session will take place. During the question and answer session, I will ask senators to be succinct and to the point when asking the questions, and I ask the witnesses do the same when answering.
Mr. Rivers, you have the floor.
Nicholas Rivers, Associate Professor, Public and International Affairs, Faculty of Social Sciences, University of Ottawa, as an individual: Thank you very much for inviting me to speak about the impacts of climate change and climate change policy on the agriculture and forestry sectors.
My research focuses on how government policy can help to reduce greenhouse gas emissions associated with economic activity, and this is where I want to focus my comments today. In particular, I would like to talk about the potential impacts of climate change policy on the agricultural sector, so climate change policy rather than climate change itself.
Economists have long advocated for introducing a price on carbon emissions covering all emissions in the economy as the most cost-effective way to reduce greenhouse gas emissions. Such a policy provides incentives for all emitters to reduce their pollution without singling out particular firms or individuals. In the last few years, as you know, governments in Canada have made substantial steps forward in advancing this type of policy, with provincial governments introducing both broadly based cap and trade systems, as well as carbon taxes, and the federal government developing the pan-Canadian framework on climate change and clean growth.
While these policies are supported by economists, they have been much more controversial with the public and business communities, and particularly with the agricultural community. News reports suggest that the agricultural sector has two key concerns regarding the introduction of carbon pricing policies. First, farmers have expressed concern that carbon prices will cause increases in the price for food products. Because food is a necessity, these price increases could hurt consumers. Second, farmers are concerned that provincial and federal carbon pricing policies will undermine the international competitiveness of the Canadian agricultural sector. I have conducted research to understand both of these concerns, and it is on these points I would like to focus my comments today.
On the first point, my research suggests the concern about the impact of carbon pricing on food prices is not warranted. Statistics Canada measures a broad basket of consumer food prices across Canadian cities every month. When provinces such as British Columbia, Alberta, Quebec and Ontario have introduced carbon prices in the past, there has been no discernable impact on this measure of food prices compared to other provinces. Using a computer model, I have come to the same conclusion. The impact on food prices due to carbon taxes and carbon cap and trade systems is likely to be too small to notice.
The second key concern expressed by the agricultural sector is that Canadian carbon prices could undermine the ability of Canadian producers to compete internationally. On this point, my research suggests that existing carbon prices likely have only a small impact on competitiveness, but that the impact is likely to become more pronounced as carbon prices trend upwards in the coming years. Impacts on competitiveness, to the extent they materialize, are likely to be concentrated in one sector in particular — the greenhouse sector — because it is both energy intensive as well as easier to relocate than other agricultural producers.
Using a computer model, I estimate that the introduction of a carbon price of $20 per tonne — roughly the level currently place in Alberta, Ontario and Quebec — might result in a contraction of 1 to 2 per cent in the greenhouse sector. This impact is clearly not overwhelming, but it should be a consideration for policy makers in the development of climate policies, especially as higher carbon prices are considered in the future.
As a result of these concerns, the agricultural sector has been successful in obtaining nearly complete exemptions from the climate policies implemented in Alberta and British Columbia. In particular, on-farm fuel use is exempt from carbon taxes, and natural gas used in greenhouses receives an 80 per cent discount on the carbon price. In addition, the pan-Canadian carbon pricing benchmark proposes exempting on-farm fuel use from the carbon price. This exemption is likely to be implemented by other provinces in the coming years.
Providing exemptions from the carbon price to particular sectors undermines the cost effectiveness of this approach to reducing greenhouse gas emissions. Exempted sectors have less incentive to reduce emissions, so to achieve the same greenhouse gas reduction target, the slack must be taken up by other sectors in the economy. This increases the cost of reducing emissions to the Canadian economy as a whole and makes it more difficult to achieve our greenhouse gas reduction targets.
Rather than providing exemptions to the agricultural sectors, governments use a more nuanced approach that continues to provide incentives to reduce emissions, while at the same time shielding vulnerable sectors from losses in international competitiveness. For example, to address competitiveness concerns associated with carbon pricing in the oil, gas and industrial sectors, Alberta has adopted a performance standard approach under which firms continue to pay a carbon price but receive subsidies in proportion to their output. In a similar manner, Quebec and Ontario grant free emission permits to industrial sectors for whom losses and competitiveness are a concern, and British Columbia reduces other taxes. These approaches, or an alternative one that is designed specifically for the agricultural sector, would be preferable to the current trend toward providing exemptions to the sector.
In addition to pushing for the elimination of exemptions from carbon prices in the agricultural sector, governments should explore ways in which non-combustion greenhouse gas emissions from the agricultural sector can be better regulated and potentially priced. These emissions, which are due to livestock and fertilizer, are by far the largest source of emissions from the agricultural sector. Moreover, they represent 8 per cent of Canada’s total greenhouse gas emissions and will need to be addressed as part of achieving Canada’s greenhouse gas targets. Currently, there are few policies that provide incentives for farmers to reduce this large source of emissions. Unfortunately, the pan-Canadian framework did not propose substantial new policy initiatives to help reduce these emissions. Finding a way to price or otherwise regulate these non-combustion emissions in agriculture should be a key priority for governments concerned about reducing greenhouse gas emissions in Canada.
In summary, in my view, two key priorities for government should be, first, to roll back the exemptions to existing carbon prices for on-farm fuel use, while at the same time developing other policies that support the international competitiveness of Canadian agricultural; and second, to develop new policies to target non-combustion emissions from agriculture.
Thank you for the opportunity to speak to the committee. I look forward to your questions.
The Deputy Chair: Thank you, Mr. Rivers.
Brandon Schaufele, Assistant Professor in Business, Economics and Public Policy, Ivey Business School, The University of Western Ontario, as an individual: Thank you for allowing me the opportunity to speak to this committee. It is coincidental that Nic and I were invited at the same time because much of the research I’m going to speak about I did jointly with Nic, and neither of us knew we would be here together.
The committee’s order of reference for this report emphasizes three elements: the adaptability and resilience of the agricultural, agri-food and forestry sectors to changing climate; the repercussions of carbon pricing mechanisms on the competitiveness of stakeholders in the agriculture, agri-food and forestry sectors; and the role of the federal, provincial and territorial governments in meeting targets for greenhouse gas reductions. I’m going to talk about three studies that we’ve undertaken — two that Nic and I have undertaken and one I have undertaken myself — that hopefully speak to each of these three dimensions in this order of reference.
I’m going to summarize my punchline now. Essentially, there are few easy answers when it comes to carbon pricing and climate change in agriculture. There are a lot of nuanced effects, and this makes it really difficult to understand and appreciate the implications of climate change and carbon pricing on the sector in general.
I’m going to start by talking about land productivity and land values in the province of Saskatchewan. Now, I think Kevin provided some figures to you. I’m going to refer to those figures. They help to give a visual image of what we actually found. If we look at land productivity in the province of Saskatchewan, Nic and I did a few things. The first thing we wanted to do is figure out what’s going to happen in 50 or 100 years if the business-as-usual climate change scenarios come to pass. We looked at what’s happened in the last 50 years, and we modelled the relationship between agricultural productivity, which is measured in yield per acre, so the number of bushels of wheat, the number of bushels of barley and the number of bushels of canola that are generated per acre. We found a result that has been found in the United States and in Alberta, that there is a very sharp what we would refer to as non-linear effect of temperature on output.
If you have the graphs in front of you, the first graph I would show you is one of output of canola for different temperatures. What we find is that if there is a maximum daily temperature of greater than 30 degrees Celsius, the yield per acre in Saskatchewan drops off very rapidly. This is what we would call a non-linear effect. There is a disproportional change in outputs from a tiny change in inputs.
Now, it turns out that this non-linear effect has implications for different regions of the province of Saskatchewan. In areas in the northeast, such as the Porcupine rural municipality, we’re going to have longer growing seasons, warmer climate and higher yields. This means that they are going to be advantaged by a warming climate. In the southwest corner, in the rural municipality of Maple Creek, warmer temperatures will push you over this 30-degree threshold more frequently and they will be disadvantages due to climate change. So the takeaway is that even in the province of Saskatchewan, there will be winners and losers, and this poses a problem for designing optimal policy.
The second figure I have provided, then, shows a plot of those regions in this province that will be advantaged or disadvantaged due to a changing climate. Green sections are the northeast section. They are going to be advantaged due to climate change, and this is due to longer growing seasons and the ability to obtain more yield per acre. Regions in the southwest are going to be disadvantaged.
We can push this a little bit further. We can look at land values and how farmers are already adapting to climate change, and our best models tell us that farmers have already capitalized in their expectations of a business-as-usual scenario, that land values are already reflecting what they expect climate change to be in 50 to 80 years in the future. Again, this poses challenges for how to optimally design a policy.
Nic spoke to certain elements, such as farm fuel exemptions, and there are many other ways to address this scenario, but the takeaway is that there could be winners and losers from climate change in the agricultural sector. This is for the province of Saskatchewan; we don’t have data for other provinces.
I’ll move on to the second point I want to make, then. Professor Rivers talked about international competitiveness. The challenge with international competitiveness is something that we refer to as leakage. The idea behind leakage is that if we impose a carbon tax on a sector in Canada — an agricultural sector, but it doesn’t have to be agriculture — what will happen is that sector is going to have higher costs and probably reduce the amount they produce. This is what we want. This is the whole idea behind a carbon price. They’re going to reduce their emissions but probably their output as well.
The danger is that in highly traded sectors such as agriculture, where prices are set on a global market, other countries that don’t have a price on carbon will simply increase their production. What we’ll observe ultimately is that there will be no net change in global emissions. What will happen is that Canada will reduce its emissions and output, but other countries will increase their emissions and their output, so all we are going to do is offshore the emissions and reduce the competitiveness of the Canadian agricultural sector.
There are two places we should see this. One is in international trade statistics. One of the studies that Nick and I undertook was to look at the British Columbia carbon tax and see if we noticed any effect of this carbon tax on international trade flows. It turns out we didn’t. We found no evidence of leakage or lack of competitiveness due to the British Columbia carbon tax. I think we have to be careful here. Not finding evidence of an effect is not the same thing as there being no effect. Our statistical models were very imprecise and our data weren’t great. But using the best data and methods available, we could not find an effect of British Columbia’s carbon tax on that province’s international competitiveness.
I’ve updated the peer-reviewed study that Nic and I did for the cattle sector. I found that there was an effect on trade in the cattle sector when I use a longer time series. But British Columbia introduced an exemption in 2012, and that exemption on farm fuel that Professor Rivers mentioned virtually reversed all the negative leakage effects that had occurred in the early part of the carbon tax in British Columbia.
The final study I’ll refer to, then, is on the cow-calf sector in the province of Alberta. One of the key features that the sector has emphasized is that they have no way to pass on the cost of a carbon tax. Usually, when they talk about carbon pricing mechanisms, producers bear some of the burden and consumers bear some of the burden. In highly traded sectors such as cattle or wheat or canola, domestic producers have no way of passing on the costs because prices are set globally.
Now, it turns out that the economic damage due to a tax of any sort — a carbon tax in this particular case — actually depends upon the state of the industry at a particular time. The final figure I will show you is this one with the red and blue curve. This shows the supply function, which is an economic function that we build using models, with or without the carbon tax. It turns out for the cow-calf sector in Alberta that if prices are high, then there is virtually no economic cost to the carbon tax, but as prices fall, the economic cost of the carbon tax increases disproportionately. The carbon tax amplifies the negative effects of a weak market, and it is this non-linearity, the fact that this curve is non-linear — it sort of has this inverted “S” shape — that causes this amplification.
In the scenario in which we are currently, where cow prices are high, carbon taxes have very little impact on producers. Producers can eat the additional costs and not change output, which ultimately means that there is very little economic cost. We talk about dead weight loss and excess burden; these are the terms economists use. But when the sector is weak when prices are low, the consequence of a carbon tax is actually greater than it would be in other situations.
I’m sure there are a lot of questions both on what Professor Rivers discussed and what I have discussed. Again, thank you for inviting us. I look forward to your questions.
The Deputy Chair: Thank you both for your presentations. Most interesting. I will now go to questions, but before I go to my colleagues, Mr. Rivers, you said that the carbon tax had no effect on food prices. I found that interesting, but the ultimate question is, does it have an effect on farm profit?
Mr. Rivers: Here is what I would say: The food prices that consumers pay reflect the inputs of a number of sectors. They reflect the inputs of farmers but also the inputs of wholesalers and distributors and retailers, and they also reflect trade. By the time we start adding in all those other channels, a fairly small share of the food prices that consumers pay goes directly to farmers, so any excess tax that farmers pass on in the form of carbon taxes ends up having a fairly small effect after you have added in the wholesaling and retailing costs, et cetera. That is why we find a small impact of the carbon price on food prices when using a computer model.
You are right to point out that this additional tax bite has to come from somewhere and that part of it would be in the reduction of profits from farmers or the reduction of wages on farms or the reduction of the land prices and to a small extent the reduction of international competitiveness.
Senator Oh: Thank you, professor, for coming here today.
Some witnesses believe the new national carbon pricing policy places Canada’s agricultural sector at serious risk. In your paper on the effect of carbon tax on agriculture trade, you say there is little evidence to suggest there is a so-called risk. Can you share with us your findings to support this conclusion?
I visited two big greenhouse cucumber grower sectors in Ontario, and they are all very concerned. They told me that if the current tax kicks in, they will have to move to the States to do business. They cannot afford to compete with cucumbers coming in from the United States.
Mr. Schaufele: Nic can speak to the greenhouse sector quite well. He has done some modelling on the implications for that sector in particular.
The paper you referred to looks at international trade in the province of British Columbia before and after the carbon tax relative to other provinces in this country. We use a design where we want to see if there is any effect in British Columbia, a province that has a carbon tax that we don’t witness in other provinces. We just don’t find anything. I think we’ve got to be careful of this interpretation. We just don’t find anything on international competitiveness.
But British Columbia agriculture is not like agriculture in other regions of the country. It’s different. They focus on fruit. They have a different structure in their agricultural sector than any of the Prairie provinces or Ontario or Quebec. So we have to take that with a grain of salt.
The second thing we have to keep in mind is when we say we find no evidence, that is not the same thing as saying there is no effect. We haven’t found evidence yet. There may be an effect; it is just that we haven’t been able to detect that.
When I updated the study you referred to for the cattle sector, I found a negative effect on the cattle sector. However, the exemption for farm fuel that the Province of British Columbia granted in 2012 virtually reversed that entire effect.
When we say that there is very little effect on international competitiveness, we are saying that given existing climate policies that have been in place for several years, the data available cannot show an effect.
The greenhouse sector is a specialized sector because it uses more natural gas and energy than other sectors. I think Nic can speak to that.
Mr. Rivers: Thank you for your question.I think it’s a good one.
As I mentioned in my comments, I think if there is any agricultural sector to be concerned about, it’s the greenhouse sector. The numbers I have for Ontario suggest that energy represents about 7.5 per cent of all farm inputs for the greenhouse sector. If they spend a dollar on inputs, then 7.5 cents of that dollar go to energy. Most of that is natural gas. Because energy makes up a large share of their inputs, they are susceptible to changes in the price of natural gas. This is a sector we want to keep an eye on.
Right now, the policies in place around Canada raise the price of natural gas by somewhere around a quarter, by around 25 per cent. It raises the price of all inputs. If we take that 7.5 per cent that energy reflects in the average greenhouse and raise that by 25 per cent, we are talking about an impact of around 1 per cent or 2 per cent on the total price of inputs faced by the agricultural sector. Again, I think that’s not a trivial impact, but I think time will tell whether that’s enough to move greenhouses in and out of the country or not.
The current policy that is in place in Alberta and B.C. has been to exempt greenhouse growers almost completely from the carbon tax. I think that’s a mistake. Although I agree that they are susceptible to losses in competitiveness from the tax, especially if prices increases in the sector, I think there are better ways to avoid losses in international competitiveness than an exemption. As I said, an exemption gives the greenhouse sector no incentive to reduce greenhouse gas emissions and pushes the burden on the rest of economy. That means the rest of us have to do more. Given the ambitious targets we have, we cannot afford to leave sectors unaffected by carbon prices. We want to give everyone an incentive to reduce emissions. The suggestion would be to continue putting that carbon price on greenhouses but find other ways to support greenhouses in terms of competing internationally.
The Ontario government, for example, allows greenhouses to opt in to their competitiveness exemptions. When a greenhouse opts into the Ontario government’s cap and trade exemptions, it gets free permits in relation to the amount of greenhouse output it produces. That system continues to apply the carbon tax on the greenhouse, and so it continues to provide the greenhouse with an incentive to reduce emissions, but then the government turns around and gives the greenhouse some money to offset some of those impacts on competitiveness. That’s the kind of system that I think has some merit in protecting the competitiveness of the greenhouse sector.
Senator Ogilvie: Professor Rivers, you gave two examples where there was a different mechanism to deal with the cost of a carbon tax to significant contributors: the subsidy to the farm industry and general specific category that you mentioned and the absolution of the greenhouse sector from the carbon tax.When I hear this, I wonder whether this exercise in Canada is really worthwhile. If we have a situation where big contributors are essentially being compensated for contributions and levies will be increased in those areas where obviously the impact of the carbon is perceived as to not have a significant economic impact, therefore not a major contributor overall, why are we doing this? Does it suggest that Canada’s overall carbon contributions, in any event, from the sources we are trying to tax are relatively insignificant on a world basis?
Mr. Rivers: I’m not sure where to go here. There are two categories of emissions in the farm sector. There are fuel-based emissions or energy-based emissions which happens when farms burn diesel in a tractor or burn natural gas in a greenhouse.To a large extent, those have been exempted in Canadian climate policy, and I think that is a mistake. They do represent a fairly small chunk of total emissions. I am not sure exactly what the number is, but I would guess that it is less than 1 per cent of Canadian emissions.
The much bigger source of emissions is the non-combustion emissions in fuels. Those have not really been addressed by policy to any great extent at all in Canada. They reflect about 8 per cent of Canada’s total greenhouse gas emissions, a much bigger source. I think one of the things we want to do with future policy is really find a way to address those non-combustion greenhouse gas emissions.
On the exemptions that I was talking about, I think that if you are talking about the contribution of the fuel burned in Canadian agriculture to world greenhouse gas emissions, you are right that this is not a big sector. My concern is, as we start providing exemptions in response to perceived concerns about competitiveness, we move away from the most cost-effective policy. I think there are ways that we can support the agricultural sector and get around those concerns about competitiveness in a more cost-effective way than by providing exemptions.
I suggest that we follow the same kind of policy pathway as has been used in all of these provinces — Alberta, Ontario, Quebec and British Columbia — which takes some of the revenue from carbon tax collection and uses it to provide support to particular sectors that are considered at risk of competitiveness losses.
Senator Ogilvie: To pursue this would take too much time, so I will go to another quick question, if I might.
The Deputy Chair: Please.
Senator Ogilvie: The issue that I raised is in the larger context of the overall issue of nations with regard to the worldwide contribution.
Professor, on the chart you showed us with regard to the reduction in canola yields based on daily temperature, I am absolutely certain you controlled all the variables, but I just want to ask you about those variables. Coming up with a chart like this based on production to date on an annual basis must have required significant evaluation of the variables, such as the acres in use, the conditions of fertilization, if they changed over time, et cetera. Could you give me some sense of how challenging it is to come up with a chart of this nature?
Mr. Schaufele: These types of models have now become the standard in this type of analysis. It started off by looking at the United States. A few other papers have actually looked at the Canadian context, in Manitoba and in Alberta.
In order to come up with estimates such as these, we control for all sorts of weather, both in terms of linear and polynomials. We control for time trends to capture technical change, so it’s the idea that a tractor today is much better than a tractor 50 years ago, so a control for that. We get down to the day-over-day variation in temperature. We are using daily temperature, and we input that into a statistical model to try and tease out everything except for these extreme temperature days.
The one disadvantage of this model would be that we are at the rural municipality level rather than being at the individual farm level. We don’t have data on individual farms; we have data on rural municipalities in Saskatchewan.
Given our data constraints, we are fairly confident that we have identified the effect of temperature on yields, and our results actually match or corroborate others that have been done in Canada and those that have been done in the United States. We control for weather, technological change — whether it’s fertilization or machinery — and time.
Senator Ogilvie: Increases in production?
Mr. Schaufele: Increases in production, yes.
Senator Ogilvie: And acreage?
Mr. Schaufele: Increases in acreage, yes.
Senator Ogilvie: Thank you.
Senator Pratte: I have two questions. First, I just want to verify my understanding of your assertion that you found no effect of the carbon tax on trade, on leakage. Is it possible — I think you said it is, but I just want to check that — that the fact you found no effect is caused by the fact that, first, the carbon tax in B.C. is still relatively low and commodity prices are high? Therefore, when the tax increases — and I think the current government has said they will increase the tax — in a situation where prices are lower, there could be an effect? We could find an effect?
Mr. Schaufele: I think there are a couple of ways to answer that. First, the carbon tax that we actually examined was put in place in 2008, and our data go to 2012. Commodity prices were fairly volatile throughout that period. They were high for a stretch, low for a stretch and then rebounded. We are estimating an average over that entire period. It could be that the effect does depend on prices. My analysis of the Alberta cattle sector shows that that is a very important component.
When the carbon tax increases, regardless of what the previous results demonstrate, it will be more onerous on farmers. This is the whole point of having a higher carbon tax; we want to provide a greater incentive to reduce emissions. So the expected direction of change will be towards the potential for more leakage. Whether this is meaningful in a real-world context is difficult to say. Our results don’t provide a lot of insight into that, unfortunately.
Senator Pratte: For my second point, I would pursue Senator Ogilvie’s question. I am not sure I understand the alternative approaches that you propose, Professor Rivers. I will try to explain what I don’t understand.
If one particular sector is not exempted from the carbon tax but is seen as vulnerable to the effects of carbon tax on its competitiveness, what I understand you’re proposing is that the government of a province, for instance, would subsidize it or compensate for it because it is seen as at risk. For that particular sector, therefore, as a matter of fact, it would be exempted from the effect of the carbon tax, would it not? It would be compensated?
Mr. Rivers: Right. So remember, compensation happens at a farm level rather than a sector level. Maybe I was speaking in a confusing way, but I think that is not right.
The way that these mechanisms work is that — let me describe the Alberta mechanism. The Alberta mechanism sets a benchmark performance for different sectors. If I am a steel company or an oil company, I know that the benchmark will be set at one of the better performing oil companies in the province. It may be that I will set the benchmark at a certain number of kilograms of CO2 per barrel of oil produced. If I am able to produce as a company at a better greenhouse gas intensity than that, then the government will give me a net subsidy. If I produce at a worse intensity than that, then the government will give me a net tax. So this kind of approach leaves in place the incentives for individual firms to reduce their emissions, but it also provides an incentive for them not to leave the province.
Let me give you an example with the greenhouse sector. In the greenhouse sector, the government might say, “For every tonne of tomatoes you produce, we will give you $1.” I don’t know what the appropriate price would be. “But at the same time, we will tax you for every tonne of greenhouse gas you produce.” So this combination of tax and subsidy gives producers an incentive to produce lots of tomatoes, it keeps their tomato prices low, but it also gives them incentive to reduce carbon dioxide emissions.
This is what we call an output-based regulation or performance standard, and it is the becoming the norm in greenhouse gas regulation across the world, I would say. It is the same kind of policy that California is using in its approach to reducing emissions. It’s used because the idea is that it tends to avoid changes in the average price of output sold. It avoids having any change in the price of tomatoes that the farm sells, but it still provides the incentives for reducing emissions.
In contrast, an exemption also avoids the change in the price of tomatoes, but it takes away any incentive I have for reducing emissions. So my suggestion and my comments is that we move from this exemption approach to an output-based subsidy approach, an approach where government takes a portion of the revenue that’s raised from the carbon tax and funnels it back to provide support for the output in the sector. So again, the tax is on greenhouse gas emissions and the subsidy is not on greenhouse gas emissions but on the output of tomatoes, cucumbers or whatever it is.
[Translation]
Senator Dagenais: I have two questions for Mr. Schaufele. The word “tax” scares everyone, because we know that taxes eventually end up emptying the pockets of consumers. I listened to your observations about the past, and I think it is important to have a perspective for the long term and for the very long term.
Don’t you think it’s too early to say that a carbon tax will not affect prices? Especially given the products coming in from the United States. It is unfortunate for Canadian products that U.S. products are always cheaper and consumers buy the products that are cheaper. I would like to hear your opinion on that, and then I have another quick question.
[English]
Mr. Schaufele: I believe it was Professor Rivers who talked about food prices, but I think the point more generally is whether domestic producers have any ability to pass along the tax. The conventional thinking on this, in the short run, is that prices are set by competition at the global level. Any advantage that Canadians have over global prices will enable us to grow our industry. Any competitive disadvantage we have will force us to shrink our industry. As part of a global trading network, it’s hard for us to pass on any prices to consumers because what will happen is that we will import cheaper goods from elsewhere.
In the long-run, it is hard to make predictions on this. I would argue that I personally don’t have a good handle on what the long-run implications will be. If we look at the trends in some sectors, not necessarily the carbon pricing sector but perhaps in the cap and trade system created for SO2, firms managed to abate emissions faster than what was expected. This is what happens when we give them an incentive to undertake technological investments. They often do better than we think they can do. That being said, it is hard to draw definitive conclusions.
[Translation]
Senator Dagenais: In the future, what are the biggest challenges that the government will have to overcome in order to meet or curb the expectations of Canadian producers? They are waiting for the Canadian government to take action.
[English]
Mr. Schaufele: I think there are two challenges. I will talk about the existence of the British Columbia carbon tax. When the B.C. carbon tax was introduced, producers were equally worried as they are today in Saskatchewan, Alberta and other provinces. They thought it would decimate the industry. A couple of years later, they realized it wasn’t so bad. Part of the reason for this was they understood that the impact on their bottom line was smaller than they expected, less than 1 per cent of cost in most cases. Second, they felt they had a strategic advantage vis-à-vis, in British Columbia’s case, Washington state and Oregon, which were considering similar carbon taxes. They had already adapted and, if these states pursued carbon pricing, they would have an advantage.
That being said, we can’t discount the challenge of administrative complexity on some of these things. When programs become administratively complex, irrespective of how they should affect the bottom line, people become a bit upset. My punchline is that I am not sure.
Senator Petitclerc: I am interested in having your opinion. We have a goal of reducing emissions, but we also need to protect competitiveness. I understand that. What is the limit on how aggressive we can be in order to reach our goals while not having an impact on the economic sector?
I was reading about Sweden. I know it’s not agriculture-specific, obviously, but they have been very aggressive since about 1991 or 1992 with a large tax. I read somewhere it was $140 per tonne and there were good results. How aggressive should we be? Are we aggressive enough in order to keep that balance?
Who are the good models and what is the best practice? Who should we look to, when it comes more specifically to agriculture, in the world to achieve those results while protecting the sector?
Mr. Schaufele: I can answer this question in a number of ways, and Professor Rivers can speak to this as well. When it comes to how aggressive our target should be, on the one hand, this is a public and political decision.
On the other hand, the simplest model of carbon pricing we can devise, the one we teach to undergrads, is we should set a price, apply it to everyone in the economy and that price should equal the marginal damage, the damage of the next tonne emitted. That is the optimal level of carbon tax that we should set. In practice, it is challenging to do that.
If we step back, when we use the word “price,” we have to remember why we use it. We use it because there is a market failure when it comes to the global climate. The failure is the fact that we don’t have a market for greenhouse gases. This is effectively an input into the production process, not just in agriculture but in all sorts of sectors. And it is one people have been using for free. There is a missing market problem.
What the price should be is usually determined via models that are referred to as integrative assessment models, and Nic is an expert on those. I hope he can chime in.
In terms of good models for the agricultural sector, there aren’t many. I would say the British Columbia experience from 2008 to 2012 was an excellent model. That doesn’t mean there are not tweaks that could be made. Professor Rivers is correct in that the exemption was likely more costly than it needed to be in terms of emission reductions and total economic cost for the sector.
The Deputy Chair: Perhaps we can hear from Professor Rivers.
Mr. Rivers: That is a good question. I can answer it in two parts. First, you asked how far we can go without serious harm to the economy. The answer to this comes entirely from computer models. Obviously we have never done this before so we can’t look back in the past and figure out when we have had high carbon prices in the past and how the economy responded. It is all a forecasting exercise and it comes with uncertainties.
Having said that, I think the models are consistently showing that economies can support high carbon prices without significant changes in overall economic output. What do I mean? I mean that we could have a carbon tax in the hundreds of dollars per tonne and we wouldn’t see a big impact on overall economic output and GDP. We would see significant changes in sector output. We would see changes in the economic structure. We would move out of the more carbon-intensive sectors and into the less carbon-intensive sectors. At the overall level, with wages, for example, we wouldn’t see big changes in the economic outputs.
The agricultural sector in particular is slightly more carbon intensive than the average section, but not much. With the agricultural sector as a whole, around 3 per cent of its inputs are from energy. If we are to significantly increase the price of those inputs and hopefully have the agricultural sector respond by curtailing the use of those inputs, we will see changes in the eventual price of agriculture but they will be relatively muted.
Take my example before of the 3 per cent of the total inputs to agricultural are from energy. A $100 a tonne carbon tax would perhaps double the price of energy, so that would increase the price, if farmers didn’t do anything in response, by 3 per cent in the agricultural sector. This is a relatively small amount compared to the fluctuations in output prices that happen from year to year or the fluctuations in fertilizer prices, which are a much bigger input for farms. We have seen the price of fertilizer change by a factor of 3 over the last decade. That is a much bigger impact on farm prices or farm profits than any carbon price that is being considered will ever have.
It is the same thing with prices of agricultural output. Changes in commodity prices for canola or pigs, or whatever it is, have much bigger impacts on the profits of a farm than any carbon prices being discussed ever will have, especially when you remember that carbon prices raise revenue for the government. One of the things the governments should and could do with that revenue is turn around and offer subsidies to affected sectors to maintain their international competitiveness. That per cent number is by far an upper bar on the number we would expect from a much more substantial carbon price than we see today.
The Deputy Chair: My original question was about the effect on farm profit. If you add subsidies to the mix, then you have to talk about the effect of subsidies on our trade.
Senator Ogilvie: This is a question of clarification. Professor Rivers, when you were responding to Senator Pratte, the examples were what you would like to see applied to the greenhouse sector and the petroleum sector, because what you described was different than what I heard you say in your presentation as to what was happening in those two sectors. I thought I heard you say that in the greenhouse sector, they had reduced the impact of the carbon tax and, in the petroleum sector, subsidies were helping to offset that. I want to know whether you were giving what you considered to be the best case example in response to Senator Pratte versus what is actually happening now.
Mr. Rivers: The clarification is well deserved. That was confusing. Different things were happening in different provinces. What has happened in B.C. is different from what has happened in Ontario, for example. B.C. has exempted its on-farm fuel use from the tax. It has also given an 80 per cent reduction in any natural gas used in greenhouses on the tax, so essentially exempt that sector. I think that is a mistake. The pan-Canadian framework has also exempted on-farm fuel use from the tax. I think that is a mistake.
Ontario has not done either of those exemptions. What Ontario has done is allowed large greenhouses to opt in to its competitiveness mechanisms. This works well if the greenhouse is a big enough operation to have some ability to deal with the administrative burden that it imposes. It does not work so well for small greenhouses. I think a better variant of the Ontario program would be to institutionalize this kind of competitiveness subsidy for all greenhouses. This is something as well that Alberta has done in a similar way to Ontario. It is confusing because the experiences are very different across the provinces.
Senator Woo: I apologize for arriving at the meeting late. I had another appointment this morning. I hope this issue hasn’t been covered already. Could either of you speak to the current thinking on the efficacy and desirability of border adjustment taxes to compensate for differences in carbon reduction regimes among trading partners?
Mr. Schaufele: Professor Rivers can probably speak to this better than I can.
Mr. Rivers: That is a good question. There are two streams of literature. There is a legal literature and there is an economic literature.
The economic literature I will try to summarize by saying that studies have suggested that border tax adjustments would be effective in reducing leakage and these kinds of changes in competitiveness, but they could also be used by countries as a kind of “beggar thy neighbour” policy. So it is trade protectionism, and there are concerns about equity between countries. In particular, if border tax adjustments were applied, it looks like the burden would fall substantially on the less wealthy countries.
The legal and public policy literature asks whether we could legally do this. I think the jury is still out, although in my reading of the literature it suggests some optimism about the potential for using border tax adjustments legally; in other words, they could be WTO and GATT compliant. No one has tried them yet, so we will not know until a country tries them and they get judged in a tribunal.
Senator Woo: To follow up on the economic argument with respect to the risk of the burden falling on poorer countries and “beggar thy neighbour” type policies, there could be special differential treatment provisions built into an international regime. If that could be constructed, that would presumably mitigate those kinds of effects.
Mr. Rivers: Yes, I guess there could be. I haven’t seen any papers that try to talk about that or how that would work in terms of GATT compliance. I think you are probably right. There is a lot to explore here.
One of the other concerns I didn’t bring up in my original comment was the concern that these kinds of trade protectionism measures could be retaliated against and it could potentially, although the original objective of these border tax objectives were to promote the environment, end up in a retaliation trade protectionism environment. That is something that we are shy about getting into, for obvious reasons.
Senator Woo: In conclusion, I am not suggesting that I am in favour of border adjustment taxes based on carbon, but I am glad that you have provided some serious input for very cautious consideration, if there is any consideration at all for these kinds of policies.
The Deputy Chair: Mr. Schaufele and Mr. Rivers, thank you very much for your presentations. You have given us a fair amount of food for thought and we appreciate your presentations. Professor Rivers, enjoy Paris.
For our second panel today, we welcome Dr. Tony Shaw, Professor of Geography, Brock University. Thank you for accepting our invitation to appear. I invite the witness to make his presentation. Following the presentation, a question and answer session will take place.
Again, I will ask senators to be succinct and to the point when asking questions, and I will ask the witness to do the same in providing answers.
Mr. Shaw, the floor is yours.
Tony Shaw, Professor of Geography, Brock University, as an individual: I would like to thank the panel for inviting me. It’s a great privilege to be here and to give my perspective on climate change in Canada. I’ll be specifically addressing some of the challenges that the wine industry in Canada is facing, how we can adapt to some of these changes and perhaps even mitigate some of the impacts associated with climate change.
The wine industry, of course, is a relatively small industry in terms of its overall contribution to the economy, but its significance is quite important. As you know, Canada has been importing and exporting wine, but primarily we import more than we export. The industry is expanding throughout Canada. I have noted in the presentation the areas in which we have commercial grape production. Beginning in the east, the Annapolis Valley has been a very important area for fruit production, the Northumberland area is emerging and even in Prince Edward Island. I was in Prince Edward Island and they have a number of vineyards, and they’re doing very well. It goes very well with the agri-tourism in these areas.
Moving west into the Quebec area, southern Quebec has a very beautiful landscape. The area has been growing grapes and making wine for many years and is also quite noted for its apple production.
Then we move into Ontario and, within the Great Lakes area, we know that the Niagara region stands out as the number one area in terms of viticulture production in Canada, primarily because of the moderating influences of Lake Ontario and Lake Erie. But we also have a number of emerging areas in Ontario, including Huron County and Norfolk County, which hopefully by the end of this year will become the fourth appellation in Ontario. We have Grey County and even experimentation in the Ottawa Valley to grow grapes.
Moving across Canada, we hop and skip over the Prairie region. The reason why grape production is absent there is primarily because of the severe winter temperatures.
Then we go into the Okanagan area, which is the second most important area in Canada and is noted for tender fruit and apple production, but those are disappearing rapidly and being replaced by wine grapes. And then there is lower Fraser Valley and the eastern part of Vancouver Island.
These are the areas in Canada, and by no coincidence they are there primarily because of the climate. The climate is the number one factor in terms of where we can grow grapes in Canada or anywhere in the world. That’s the number one limitation.
I would like to address what is happening with climate change. You have the statistics before you. I sourced that from the Canadian Vintners Association to give you some idea of the contribution of this industry. Symbolically, the industry is very important for Canada. This is primarily because when we speak of wines coming from Canada, ice wine, of course, is known internationally. And I’ve gone to numerous conferences around the world, and every time they ask about wine, they ask about icewine. That industry, in the context of climate change, is facing serious challenges.
The one thing we tend to look at when we look at the evolution of climate within the last 50 years is the temperature. The temperature is the number one factor in terms of where we can grow these grapes successfully, including the quality and the quantity. An important internationally recognized climate index is what we call the Winkler Index and growing degree days. I’ve looked at the trend in growing degree days for selected areas within the primary viticulture area across Canada, and you can see the graphical plots in all these areas, beginning in 1970 — we chose that data as we didn’t want to go further back because you’d need to do manipulation with the data in terms of homogenization and so forth.
If you look at the overall trend for all the areas I have identified, you’ll see that they are increasing. In other words, the temperature is increasing across Canada. Without getting outside of the wine industry, we know that the area witnessing the greatest increase in temperature across Canada is the Arctic region, and this is internationally recognized, but I will not address that. That is a well-known established factor based on the empirical data, especially the temperature data we have for the Arctic regions and much of Canada. All of these areas are emerging and evolving.
Canada is known as a cool climate region in the sense that our summers tend to be on the cooler side as compared to some of the Mediterranean countries, southern Italy, southern France, Spain, Greece, California, Australia, South Africa and so forth. So we are a cold climate area, and that is the unique thing about the climate of all the viticulture areas across Canada.
However, what we have seen over the last 50 years is that, especially in the southern Okanagan, Niagara region and Lake Erie north shore area, they are emerging from a cool climate area to a warm climate area. In other words, the varieties that have been established, such as the European varieties — we are familiar with Chardonnay, Cabernet Franc, Merlot, Reisling and so forth — are cool climate varieties that have done well. However, in some years, we find the heat — the number of growing degree days is so high that in fact they are capable of ripening the warm climate varieties found, for example, in southern France and parts of California, especially Napa Valley.
To some extent, that is good. The change in climate has mixed benefits. On the one hand, we are seeing that the summers are getting warmer and it allows us to produce some of the varieties that we were having difficulty producing, especially the reds. Cabernet Sauvignon is a difficult variety to mature because we don’t get all the required heat units to bring it to its full potential. However, in some years, as you can see, it’s spiking. Some years you can have full maturity.
Now, this year is quite troubling for the Niagara region because the number of heat units are actually quite below average. So some of the varieties that we were expecting to reach full maturity, such as Cabernet Franc and Merlot — not so much Merlot. Merlot is an early-season variety, but Cabernet Sauvignon and Cabernet Franc are varieties that will not be able to reach their full potential. However, the whites will do very well, such as Riesling, Chardonnay and Pinot Noir, which in a cool climate and short season will do very well this year.
The one troubling thing about climate change — I always use the analogy of the TSX, the Toronto Stock Exchange. In other words, over the years, if you buy your stock and you hang on to it, according to Warren Buffet, in the course of time it will increase in value, but you will see significant fluctuations from one year to the next. If you cash out when things are at a very high level, you soon realize it could have gone higher.
This is the troubling thing, that we have — the term used in the business sector is volatility. We are seeing a change in climate, an evolution from a cooler to a warmer area, but at the same time, it’s subjected to a high degree of variability. One of the troubling things about climate change is the extremes; you have very warm summers and very cool summers. That’s just the summer situation.
We are seeing problems in terms of maintaining consistency in terms of quality and to some extent quantity in terms of total yield. With wine grapes, it doesn’t matter; quantity might be low but the quality can be high. So this is a troubling factor in terms of climate change. Even though it’s great to say it’s warming and we can grow these other varieties, the troubling thing is we are not able to maintain consistency in terms of quality.
I’ll tell you later when you pose questions that wineries are able, to some extent, to address that change in quality by doing certain viticultural practices and some manipulations within the winery to maintain consistent quality, such as blending and so on.
That’s just summer conditions. The one good thing about our climate is that our winters are getting milder, and that’s good. If you look at the trend, I looked at the extreme maximum temperature and I chose a threshold temperature of minus 20 degrees. It is a threshold temperature that can cause damage to the primary buds, which are the buds that produce the crop. So if you have minus 20 and lower, you have significant damage to the primary bud.
However, we are finding that the trend and the occurrence of damaging temperatures are going down significantly, certainly in Ontario and in the Okanagan area. It still remains problematic for Quebec because Quebec is actually a very continental climate, with no major modification of its climate by any type of large body of water.
The Annapolis Valley, on the other hand, is not subjected to the same lower temperatures; however, they have some problems in terms of the growing season. As you can see, the growing season is relatively short and very cool, so they are able to produce very good whites. Of course, I have to say hats off to the Nova Scotians because they have managed within a very short period of time to make some outstanding wine, especially sparkling wine from l’Acadie grapes. It has made a tremendous impact on the Ontario and Canadian markets, but they still struggle to achieve a high number of heat units to mature the red varieties.
Certainly in the Okanagan area, they have roughly 100 kilometres from the northern to the southern part, and you have a number of different climatic zones. The southern part is warming up at an alarming rate, and that could be troubling for them because we are finding that grapes are ripening very early, and accelerated ripening is not good for quality. The northern Okanagan also cannot mature red varieties and are able to do so now.
So we are seeing some positive changes in some geographic areas and within the same regions and also some negative changes.
Going back to the winter, then, our winters are getting milder, but one of the troubling things about winter is that our climate is subjected to this warmth followed by cold snaps. We know we have the so-called January thaw, which is good. You don’t have to go out and shovel any snow, but the problem for the viticultural and fruit industry is that when plants, when vineyards and fruit buds go through a period of dormancy of roughly about 1,000 hours, any mild or warm temperatures will actually create bud bursts. If you have a warm spell followed by a cold snap, then you have a major problem. We have a lot of volatility there in the winter months in spite of the fact that the overall trend is a warming trend. In other words, we are not out of the woods.
This is why I say to you the industry is extremely — as I say, a canary in a coal mine — sensitive to temperature, to climate. This is why throughout the world where the climate is changing — in fact, we are fortunate here in Canada in that climate change for us in the agricultural sector can bring a tremendous amount of benefit in that it is able to expand production into areas that were once considered climatically marginal.
The first conference I attended on an international level was in South Africa about 15 years ago, a wine conference. When I was talking about the wine industry in Canada, they could not believe that we grow grapes in Canada because everyone thought we are a country with lots of snow and extremely severe winters. Little did they know that, for example, Victoria is a very warm area. The southern part of British Columbia and the Okanagan area and even the Great Lakes area are relatively mild. So these so-called climatically marginal areas are now actually emerging as very important areas for wine production.
I have to say, I’m extremely proud to be associated with the wine industry because I think the industry has actually revitalized many rural areas in that it has brought in agri-tourism. In other words, anywhere in the world you travel and see wine production, it is always associated with food and beautiful landscapes, and it brings in tourists and elevates the economy of an area and the culinary status of that area. So the industry, even though we talk about wine, we need to also talk about the food associated with it. It is a very important industry, and I think it holds a tremendous economic potential for actually resuscitating the agricultural sector in many areas that are currently struggling.
What are the growers doing? I have to say, the industry is relatively young in terms of the production of what we call table wine. We have been growing grapes in Ontario since the 1860s, but the industry has been growing primarily Lambrusco grapes mostly for juice and jam. We no longer grow Lambrusco grapes on a commercial basis in Ontario — that has been gotten rid of — so we grow principally European grapes.
The industry is actually doing a great deal in terms of keeping up with the latest in technology. I have to say, even though the industry is young in terms of years, it has hundreds of years of accumulated experience because the people who are growing grapes and making wines are coming from immigrant families, principally from Europe, but, of course, many are coming from Australia, Argentina and Chile. Most of our early growers in the viticultural industry came from Germany, Italy and France.
Similarly, I might add, for all new world countries. I was in Argentina and it’s the same thing; many Italians. In Chile, there are many Italians and Spaniards. I was in Brazil. Brazil grows grapes and has over 100,000 hectares in grape production. Much of it goes to Lambrusco, but they make some of the best sparkling wines in South America. Of course, that country has a fairly large immigrant population. It is accumulated knowledge.
So the industry has a tremendous amount of knowledge in terms of historical knowledge, but also the growers are very well trained. The people who are growing grapes now — the institute at Brock University has graduated a number of prominent winemakers and viticulturalists, and those are now moving into the industry and actually doing very well. The industry is doing well. The growers are apprised of what’s happening with climate change in the viticulture practice and how to make adjustments with the latest in technology and so forth.
Adaptation is how the growers respond to the problem. In anticipation of long-term changes in relation to the climate, I don’t think they are looking far ahead. That’s the role of government, institutions and the universities.
The growers themselves are battling with day-to-day problems. If you own a vineyard, you never sleep at night. This year has been a major problem for Ontario because we have had so much rainfall, and fungal disease is a major issue. Growers have to be vigilant. Then, of course, comes the fall and you could have a vintage year and you have too much rain in the month of September and October. So you might have a crop that reaches maturity and is ready to be picked, and your hopes are dashed by heavy rainfall. Everything might go well in the spring and then, when you think everything is fine, you have a late spring frost.
Growers are very vigilant. They are actually responding and adapting to many of the changes associated with the problems they face in vineyards, especially due to weather and climate. They are not able to look into the far future in terms of how to model the climate to see anticipated changes in the next 15 or 20 years. It’s the role of government to do that because government has the foresight, to some extent, and the long-term plans. The growers are more concerned with the day-to-day issues. We have to work with both groups. The growers take the information provided by research institutions at the universities and so forth and implement that in their vineyards.
I have to say our growers are very smart people. Many of them are university graduates. They are not Bay Street lawyers and businessmen who made a lot of money and in their retirement decided to have a vineyard because owning a vineyard and making wine might look from the outside as very romantic. There is no romance in a vineyard.
The Deputy Chair: A lot of hard work.
Mr. Shaw: My heart is with the growers and the winemakers in Ontario.
The Deputy Chair: Dr. Shaw, thank you.
I live next to the Annapolis Valley and Senator Ogilvie lives in the Annapolis Valley, so we are very familiar with the positive effect that the wineries have.
I have one quick question. You talked at the very beginning about icewine, but you also talked about the effects that climate change is having. I assume that means that the harvest of icewine will continue to go later and later as we have climate change, probably well into January. What does that do to the quality of the icewine?
Mr. Shaw: Over the years, what we have seen, especially in the Niagara region which produces more than 70 per cent of the icewine in Canada, is that the critical temperature for picking icewines, as set out by the VQA, Vintners Quality Alliance, is minus 8 degrees and lower, but minus 8 is the upper threshold. Growers would like to pick it at least at minus 10 because it’s completely frozen at that stage. The number of days in which you have minus 8 and lower are getting fewer and the time for picking is getting later. I have more slides on the number of picking days and the consecutive picking days. Overall, we are seeing the picking days are declining and the date at which you pick is getting later.
Once you get beyond the middle of January and into February, you have warmer temperatures, so there is a deterioration in quality. You have rot, and the biggest problem is pests. So the dates are getting later and the number of hours in which you are allowed to pick icewine is declining precipitously. That is a serious concern for the industry.
One of the good things about climate change is the areas that are colder could be identified for growing icewine. But we are not growing annual crops such as wheat or soybeans where we can simply pick up and move. You have to plant a vineyard, and it takes a lot of money. To bring one acre into production is about $25,000. It’s not simply a matter of moving into a cooler area. The industry is facing challenges from climate change in terms of moderating winters.
Senator Oh: Professor Shaw, thank you. We are from the same area, Toronto and Niagara Falls, which is not too far.
Your paper is entitled The Influence of Institutional and Structural Constraints on Agricultural Innovation Adoption. In relation to adopting clean technology in order to fight against climate change, can you explain what public measures should be taken in order to properly foster innovation in agriculture? Also, since you are from the Niagara Falls area where Brock University is located, what is the future of icewine? I’m from Ontario and we have built an international reputation for icewine.
Mr. Shaw: The future of icewine remains to some extent in doubt because of climate change. As I mentioned, the industry is experiencing warmer winters, which means that some years you have earlier picking. This past winter was very good in that we had a fairly early picking time, but in some areas those picking times go well into January. So it is becoming later and later, and the number of days for picking icewine is declining.
Most of the growers, once the temperature drops to minus 8, they will probably pick everything. All you need is one or two events that occur early. You do not need 15 or 20 days. Some growers will not pick all the icewine at the same time because they want to do experimentation with different batches, but that does not give the choice of picking at different times if the temperature doesn’t materialize. So if you have minus 8 or lower, you go out and pick most of the icewine. You do not wait for another opportunity because it may not come for another two or three weeks.
What can the government do? Essentially, I don’t see how governments can do anything in terms of what goes on in a vineyard. In terms of anticipating what is likely to happen in the near future, there is no climate model. As you know, hurricanes are developing and the models are not able to predict more than 72 hours in advance with any degree of accuracy. The climate and weather systems can be random in some cases. It is not that easy to predict.
However, our climate model does give some scenarios, and those scenarios, depending on what scenario we use, give some indication of what is likely to happen. The change that government can make is in terms of better predictions to allow for a more educated guess of the future.
The thing that we can do now, in terms of mitigation, is the way in which we respond to greenhouse gas emissions. In terms of carbon pricing and tax, those are some of the government regulations that can help to bring down the carbon dioxide levels. The problem, of course, is those changes will not have immediate impact. The climate system is far more robust than that. It will take a long time before we see any significant noticeable effect in the moderation of climate, a significant reduction in carbon dioxide levels, but that does not mean that we should not act now.
My feeling on this issue is, yes, we need to chew gum and walk at the same time. In other words, we need to adapt because that is the surest thing an individual can do. An individual may not be able to mitigate, though they may attempt that on a smaller scale. We need to move hand in hand with the private sector and with the government. Whether mandatory or voluntary, the government needs to provide incentives for industries. We need to reduce greenhouse gas but, at the same time, we need to engage in adaptation because that is at our disposal to deal with the immediate impacts of climate change.
I’m in favour of mitigation but also adaptation. Of course, we know that when we talk about climate change impacts, we talk about mitigation and adaptation, those two — not one or the other.
[Translation]
Senator Dagenais: Mr. Shaw, thank you for your presentation.
As you mentioned, the impact of climate change may be positive on wine production, for example, but what about the economy and international trade? How important can this industry be in the short and medium term?
[English]
Mr. Shaw: The importance that the industry can have in the short and medium term? We know that, looking at the employment figures for the wine industry, I think the Vintners Alliance provides something like 37,000. Those are people who are employed in the industry on a permanent basis.
We also know that without migrant workers, we will not have a wine industry in Ontario. Migrant workers are very important in ensuring that we have available labour during the critical period of farm operations. I don’t know whether those are taken into consideration in terms of the statistics or whether simply the ones who are permanently involved.
The industry has been making an important direct contribution in terms of employment, but there is also what we call the multiplier effect of the industry in that it brings in literally hundreds of thousands of tourists who spend money. There are also ancillary industries associated with the wine industry in terms of the food industry, restaurants, hotels, et cetera. In the Niagara region, many of them come to golf. I am not an economist so I cannot describe it exactly, but I know there are positive employment benefits beyond the farm.
The industry has made a significant contribution, certainly in elevating the employment situation in the Niagara region with the significant reduction in manufacturing jobs there. If it were not for the wine industry, I think the Niagara region would have been in a much more difficult employment situation.
That is also the situation we find especially in Nova Scotia, and even Prince Edward Island. Wine seems to go well with agri-tourists because you are not just drinking wine, but you are eating food, visiting vineyards, spending money, staying in hotels and motels, et cetera. There is a significant multiplier effect.
For example, Norfolk County was the biggest producer of tobacco in Canada. As you know, the tobacco industry has been in significant decline, so the farmers are scurrying around to find out what they can replace the tobacco industry with. They experimented with ginseng, and that has not done so well. But now we have 12 wineries in the area. This, of course, has been supported by the provincial government to get industries going and to help individuals establish wineries and vineyards. Those wineries are doing very well, and that area will now be the fourth appellation in Ontario. I was part of the application process. I wrote up much of the application and I have done research in that area. It is a beautiful area and a beautiful landscape. They have the infrastructure. The farmers got out of tobacco, but they are farmers and they have the skill, so they can move ahead with viniculture.
That is an example of where the wine industry is stepping ahead and making a significant contribution to the rural sector, where farmers are actually finding it uneconomical to produce certain crops. There is an evolution not only in the climate that is bringing some positive benefits, but also evolution in the local economies of many of these rural sectors, which is making a big difference.
[Translation]
Senator Dagenais: Tobacco producers may perhaps switch to cannabis. That is a joke, Mr. Chair.
[English]
The Deputy Chair: There will be a lot of people wanting to grow it. Many of them are already growing it, but not necessarily legally.
Senator Woo: Thank you, Professor Shaw, for your presentation. I am trying to get a sense of the impact of climate change on the distribution of global production in the wine industry. Presumably, all of the effects you described on the wine industry in Canada are happening in other parts of the world where there are wine industries as well.Can you help us understand if climate change is having a more severe or less severe impact in one significant wine region over another, to the extent that it becomes a material factor in the global market share, if you will? Do you understand my question?
Mr. Shaw: Yes. There is an impact especially in warm climate areas such as Spain, southern Italy, Greece, and even California. The Napa Valley, of course, is having serious issues. What is happening there is not that yields are going down, but the quality is changing.
Let me give you an example. We know that Napa is famous for red varieties, especially Cabernet Sauvignon, and, of course, much of Italy and Spain are excellent for reds, as well as Australia. I was in Argentina and Chile, and they too are experiencing significant acceleration in temperature. How does this affect the quality? When you have very warm temperatures — and warm temperatures are occurring quite early in the ripening period — that leads to the development of very high alcohol in the wine, so you have to find a way of dealcoholizing the wine. Of course, then you are meddling with the quality. It is not so much the quantity, because they can continue to produce the same amount of wine, but then the quality suffers.
We are not having that problem in Ontario, but the Okanagan — the area around Osoyoos Lake, which is the warmest viticultural area in Canada — is seeing an accelerated increase in temperature and they are producing wines with high alcohol level. They may have to harvest early to reduce that or have a different canopy system that shades the varieties. I was in Greece, and they actually cover the vines with a thin mesh to reduce the amount of radiation, or have more foliage around the food itself to protect it and reduce the rate of ripening.
This is a problem throughout the world, especially in the warmer climate areas, the so-called Mediterranean climate areas: much of California, South Africa, Spain, Italy, Greece and so forth. This is a problem for them.
On the other hand, we are seeing acceleration in the development of the wine industry in England. England is now producing some of the best champagne. England has soil that is similar to the Champagne region. We are seeing significant growth. It is kind of ironic. “Claret” is an English term, and, of course, the English love wine. More books and articles have been published by British writers than any other country. Their production of wine is now increasing.
As a result of that, we are seeing new vineyards being established in Denmark, Norway and southern Sweden, as surprising as that may be. The industry is seeing some mixed benefits — a blessing for some and a curse for others.
For Canada, if you ask me — this is not a political statement but my own personal feeling — the industry actually stands to benefit. However, as I said, there are risks involved.
Senator Woo: You clearly identified the challenge of adaptation as the most practical step that the industry and government can take in the near and medium term, but you stressed that individual vineyards are focused on the day-to-day activities and cannot spend a lot of time on long-term planning.
How well organized are we — “we” being industry, research and government — in mobilizing our knowledge, skills and resources to develop strategic and long-term adaptation strategies compared to other countries? I presume the Australians or maybe the Californians, the Italians and the French have wine adaptation strategies. How well organized are we in doing that?
Mr. Shaw: That’s a very good question. Speaking for Ontario and, to some extent, for British Columbia, the universities have been very much at the forefront of that, with the support of their provincial governments. In Ontario, we received significant financial support from the provincial government to do a long-term study on the impact of climate change on the wine industry in Ontario. I have been part of that program.The government has been very supportive through the initiative of the university.
We have a close collaboration with the industry, similar to that of British Columbia and the universities and teaching institutions. For example, I go into the vineyards, talk to the growers and consult with them and similarly with all the researchers at the universities. It is a very close collaboration. I am proud of what we are doing in Ontario and in British Columbia. We also have partnerships with institutions in Nova Scotia and, to some extent, in Quebec, but certainly with Nova Scotia, with Brock University, that is. So there is a close collaboration in terms of financial support. We also engage the industry.
As academics, I tell the students, “What we are trying to get across to you in the lecture room is what is out there in the real world, so we have to be engaged in the real world. When I stand and talk to you, I am not talking to you from reading a textbook or a journal article. I want to be there.” That close collaboration has enabled the people in the university to speak more authoritatively about what is happening in the industry because of their close affiliation.
Government support is crucial from that standpoint, in providing financial support. The government is not looking over our shoulder to see how we are spending the money because I think people in the universities are responsible, dedicated and enthusiastic enough to ensure that the money is spent the way it should be spent in terms of looking at the real world and solving real world problems.
The Deputy Chair: Of course, not only Brock University but also Niagara College is doing that. This committee has visited Niagara College and visited their winery and brewery there. I was disappointed that I didn’t know that it was there when I was a student. To go to a university that has a winery and brewery on campus is a bit of a dream come true.
Mr. Shaw: Exactly. That’s a good one. I inadvertently missed Niagara College, but they also play an important role. They train a lot of viticulture students. Brock has started a new program for cider because that is growing quite big in Ontario as well.
The Deputy Chair: The industry in Nova Scotia is closely associated with tourism and food. I would suggest that of the top 10 restaurants in Nova Scotia, five of them are in wineries. They are extraordinarily good for the tour system.
Mr. Shaw: The industry elevates an area; I really do think so. I have gone to numerous wine conferences. These are international conferences, and they tend to take you to the best areas and best restaurants. The government shouldn’t know that, but when you go there you can see the close association between the wine industry and the restaurant and dining sector.
The Deputy Chair: Dr. Shaw, thank you very much for your presentation. You have added a lot to our discussion. One thing I have learned on this committee is if you want to have a good discussion, put wine on the menu.
(The committee adjourned.)