Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 52 - Evidence - Meeting of May 22, 2018
OTTAWA, Tuesday, May 22, 2018
The Standing Senate Committee on Agriculture and Forestry met this day at 5:40 p.m. to study the subject matter of those elements contained in Part 5, insofar as that Part relates to farming of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures.
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: Honourable senators, welcome. We have with us our first panel.
To begin, I’m Senator Diane Griffin from Prince Edward Island. We will introduce the senators.
[Translation]
Senator Gagné: Good afternoon. Raymonde Gagné from Manitoba.
[English]
Senator R. Black: Robert Black, Ontario.
Senator Ataullahjan: Salma Ataullahjan, Ontario.
The Chair: Thank you, folks.
Today, we are studying the subject matter of those elements contained in Part 5, insofar as that part relates to farming, of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures.
Our first panel is with us. From the Union des producteurs agricoles, we have Paul Doyon, 2nd Vice President General, General Management; and Laure Vinsant Le Lous, Economic and Trade Coordinator, Agricultural Research and Policy Department. And from the Alberta Federation of Agriculture, we have Lynn Jacobson, President.
I will ask Mr. Jacobson to lead off with his presentation, please.
Lynn Jacobson, President, Alberta Federation of Agriculture: Good evening, Madam Chair and committee members. Thank you for giving me the opportunity to appear before you and offer feedback on behalf of the Alberta Federation of Agriculture in regard to the proposed greenhouse gas pollution pricing act.
My name is Lynn Jacobson, and my family and I have been farming in southern Alberta since 1905. As President of the AFA, Alberta’s largest producer-funded general farm organization, we give farmers the opportunity to make their voices heard on issues that affect their operations for future generations.
However, our industry faces significant challenges as we look forward, with world population expected to increase by more than a third over the next 30 years. Farmers are tasked with doubling food production by 2050 while further reducing agriculture greenhouse gas emissions, which account for approximately 24 per cent of global emissions.
In Canada, primary agriculture accounts for approximately 10.2 per cent of our nation’s emissions from animals, crops and fuel. However, across the country, we have soil sinks that drop our net total to 8.6 per cent. Agriculture is one of the sinks we can use.
While Alberta farmers continue to strive to meet emission reduction demands through the use of conservation cropping practices that increase carbon storage in soils and lower emissions from fuels and fertilizers, increased production still means increased inputs. Unfortunately, we can’t have one without the other. We must acknowledge the limitations to reducing net Canadian agricultural greenhouse gas emissions while also asking farmers to increase production.
Alberta’s carbon market: In Alberta, we are fortunate to have a carbon offset system that has been part of our province’s pioneering strategy to reduce greenhouse gas emissions for over a decade. We’ve shown Canadians how things can be done and learned valuable lessons along the way. By voluntarily adopting agricultural practice improvements, our farmers have earned extra income while creating carbon credits for trade within the carbon market.
Since 2002, nearly 13 million tonnes of CO2 have been voluntarily removed from the atmosphere in Alberta. To put that into perspective, it can be compared to removing approximately 2.5 million cars from the road. These emissions offsets allow Alberta to generate as much as 35 per cent of the emission reduction targets Canada has put forward and are estimated to have generated about $170 million for farmers and aggregators to date in Alberta. This further makes the case that agriculture can be part of the solution when it comes to decreasing carbon.
On the impacts of carbon pricing, Alberta’s carbon levy was introduced in January 2017. While agriculture is the only economic sector with a levy exemption applied to dyed diesel or gasoline used in farming operations, it does not extend to the use of natural gas and propane, both of which play a big role in agriculture production practices like grain drying and irrigation.
According data recently released by Statistics Canada, Alberta currently has the most farming acres under irrigation in the country. In 2016, Alberta producers irrigated 1.21 million acres of farmland, representing 71 per cent of the total irrigated land in Canada. It’s important to note that, nationally, the percentage of irrigated land increased 18 per cent between 2014 and 2016, so the use of irrigation is on the rise.
It’s logical to anticipate that with the predicted effects of climate change being the alteration of weather patterns and growing seasons, irrigation will become more important than ever before. Further, as the price of unavoidable input costs along the supply chain continues to increase — things like trucking, fertilizer, rail transportation and electricity — farmers’ profits decrease without the ability to pass additional costs to customers.
The AFA would like to see all farm fuels exempt from carbon pricing. While there may not be a desire to exempt these fuels across the board, perhaps there is a way to mitigate some of that usage with a tax credit for fuels used by farmers in the production of food. I’d like to talk more about that. The idea is that by giving a tax credit, you can capture things outside the legislation at this point in time, such as trucking, rail transportation, and electricity for irrigation needs, which is generated by natural gas. There’s also an issue on that one. If you give a tax credit, you would be able to capture some of those usages for food.
As agriculture continues to change and evolve, clearly defining what agriculture is, along with the activities that fall under its umbrella, becomes more important. The proposed definition of “eligible farming activities” found within Bill C-74 states “a prescribed activity,” yet there is no further explanation as to what this means. Engaging in discussions to clarify that is something AFA would be open to taking about in the future.
Additionally, it’s important that we not downplay the importance of our industry to Canada’s economic health. Currently, Alberta is the third-largest exporter of agri-food products in the country, with exports totalling $10 billion, yet we are now competing against countries with no price on carbon. Steps must be taken to ensure that carbon pricing does not affect our competitiveness on the global stage.
Within our own country, farmers are already being affected differently by carbon pricing due to approaches taken by each province. This has created disadvantages for some producers. We would like to see a federal, standardized approach to the carbon offset system, which would help to level the playing feel for farmers across Canada and allow for trading of carbon credits across provinces.
In December 2017, the Alberta government announced $1.4 billion in provincial climate leadership plan funding. This funding for continued research and further transition to a diversified low-carbon economy is absolutely critical for the agriculture sector. Investment in those programs improves both environmental stewardship and energy management practices, speeding up the transition to green energy options for farmers. The AFA cannot stress enough the importance of carbon levy reinvestment by both federal and provincial governments.
In conclusion, agriculture will continue to be a big part of the solution when it comes to the reduction of carbon. However, we cannot forget that it is only one cog a very big wheel. Reducing emissions is not just an agriculture issue; it’s one for all of us. In order to see truly significant reduction in carbon, we all must work toward decreasing our carbon footprint. The bigger question is: How do we spur citizens across the globe to be part of the solution and do their part?
Once again, thank you all for your time. I look forward to answering questions at the end of the presentations.
The Chair: Thank you very much.
We will move to our next presenter, Mr. Doyon.
[Translation]
Paul Doyon, 2nd Vice President General, General Management, Union des producteurs agricoles (UAP): Good afternoon. The Union des producteurs agricoles wants to thank the Standing Senate Committee on Agriculture and Forestry for the invitation to appear as part of the consultation on the Greenhouse Gas Pollution Pricing Act. My name is Paul Doyon. I am the 2nd Vice President of the Union des producteurs agricoles, and I am joined by Ms. Vinsant Le Lous.
In a few words and a few figures, the UPA is a union whose main mission is to promote, defend and develop the interests of Quebec’s agricultural and forestry producers. It represents 41,400 Quebec farmers who are operating 28,194 agricultural businesses, which are mostly family-run.
In 2016, the Quebec agricultural sector generated $8.3 billion in revenues, which makes it the highest contributor in Quebec’s primary sector and a major economic player.
The proposed federal framework would not apply in Quebec. Canada’s agricultural sector is already dealing with the existence of several carbon pricing policies. At the outset, the federal government’s legislative proposals would not apply in Quebec, whose carbon pricing system already meets the federal framework’s minimum requirements.
Despite that, the UPA feels that the proposed definition must be broadened. We recommend broadening the definition of an “eligible farming activity” to include all production sectors. Right now, horticulture and maple syrup production appear to be excluded from the definition.
The definitions of “eligible agriculture fuels” and “eligible farming machinery” should also be broadened to include all those used for farming needs. Currently, natural gas, propane, and heating and ventilation systems seem to be excluded. Quebec’s greenhouses, for example, are increasingly turning toward natural gas for heating, but also for CO2 injection to promote plant growth.
In Quebec, the system that has been in place for several years is more demanding than the proposed federal framework, and that hurts farmers. Since January 1, 2015, fossil fuel distributors operating in Quebec have been subject to the cap-and-trade system for greenhouse gas emission allowances. Those fuel and fossil fuel distributors pass on the entire cost of their greenhouse gas emission allowances to their clients, including those of the agricultural sector. So the agricultural sector has been dealing with carbon pricing on its use of fossil fuels for several years without any exemptions, contrary to other provinces.
Here are a few figures: in 2018, the additional cost to Quebec agricultural producers was $36 million. Carbon pricing costs $1,300 on average per farm and $2,400 for a farm specializing in corn and soybeans. The upward trend of the price per tonne of CO2 equivalent emissions will lead to greater pressure on producers. That pricing increase leaves less room for updating equipment or investing, especially in energy efficiency.
Laure Vinsant Le Lous, Economic and Trade Coordinator, Agricultural Research and Policy Department, Union des producteurs agricoles (UPA): Good afternoon. I will continue with the implementation of the framework that creates inequalities among Canadian provinces. As you know, British Columbia, Ontario, Quebec and Alberta have had carbon pricing systems for several years — British Columbia since 2014, and Alberta since 2017. Those provinces have also provided an exemption for the agricultural sector, an exemption for farmers related to the carbon tax on fuel — gas and diesel — and relief on carbon pricing for the use of natural gas and propane in the greenhouse industry.
The disparity is already harming competitiveness among provinces, and the proposed federal framework may increase that inequality, as it would only be implemented for the provinces that have no carbon pricing and it provides an exemption for the agricultural sector.
I remind you that, in 2016, the percentage of greenhouse gases produced by Quebec’s farming sector accounted for nearly 11.25 per cent of the total GHGs. The agricultural sector’s portion of the total greenhouse gases produced in Quebec in 2015 was 11 per cent. Significant efforts are already being made by the agricultural sector to reduce greenhouse gas emissions. This can be seen with the significant participation in energy efficiency and energy innovation programs, be they programs by hydroelectricity or natural gas distributors, or government programs.
[English]
The Chair: I’m sorry, but I have to interrupt for a minute. I need four senators in order to pass a motion so the rest of us can continue.
Oh, I’m sorry. I didn’t see Senator Petitclerc come in.
Please go ahead.
[Translation]
Ms. Vinsant Le Lous: Greenhouse gas emissions in the Quebec agricultural sector have been stagnant since 1990, but, on the other hand, there has been a significant increase in the revenues generated by the agricultural sector in terms of revenue or GDP. You could read on page 8 of our document about a 115 per cent revenue increase over that same period and a 42 per cent increase in total net revenues for Quebec farmers.
Despite all that, the portion of greenhouse gases generated by the farming sector and related to fossil fuels is immutable beyond a certain limit in the absence of significant technological advancements. Farmers can make a lot of efforts in terms of energy efficiency, but they cannot go beyond a certain immutable threshold. We are talking about major technological advancements, be it in terms of replacing tractors by machines that run more on electricity or on fuels with lower greenhouse gas emissions.
There will also be greenhouse gas displacement if a triple-phase approach is adopted for farming machinery operations that, instead of using oil or diesel, use hydroelectricity. That is the case in Quebec, where the use of hydroelectricity will help avoid a great deal of greenhouse gases being created. Currently, in Quebec, 40 per cent of the distribution network is triple-phase. Of course, much work in that area needs to be done. In addition, to displace oil and propane, the industry can continue to deploy the natural gas network, be it to heat the inside of greenhouses, to inject CO2 into greenhouses to promote plant growth, or to dry grains. So it is very useful for the farming sector.
The agricultural industry’s portion of GHGs that is related to the biological phenomenon as an offset to the 11 per cent represents nearly 90 per cent. That portion is much less easy to reduce through the energy efficiency efforts we just described. Simply put, the carbon market could enable the agricultural and forestry sectors to contribute to the reduction of greenhouse gases. For that, there must be protocols for compensation projects that are recognized and accessible to farmers. Those protocols must be recognized and accessible at affordable costs, accessible to farms with relatively reduced structure, or aggregation must be allowed. For the time being, only one protocol is authorized in Quebec.
Mr. Doyon: In conclusion, Quebec’s carbon pricing system is more demanding than the proposed federal framework. Quebec farmers have been suffering the negative effects of that system for a number of years, unlike the other provinces.
For the Union des producteurs agricoles, to counterbalance this phenomenon, it would be necessary to find one or more ways to restore equity among the provinces by giving the Quebec agricultural sector compensation equivalent to the costs of carbon pricing. One potential solution could be the implementation of mechanisms to return the collected funds to farmers, be it through a tax credit program, investments in farm energy efficiency or something else.
At the same time, another option would be to promote the development of the triple-phase electrical distribution and natural gas network in rural areas in order to displace greenhouse gases coming from fossil fuel combustion. Industry could also work with various federal and provincial departments and producer organizations to establish the order of priority for needs in research and development and in investment while taking into account the specific nature of farmers in order to make offset credits and protocol development more accessible to agricultural and forestry producers and to promote the collective approach.
Thank you.
[English]
The Chair: Thank you.
While I have a quorum here — the vote is at 6:20, so we will start to lose committee members — I propose that we pass the following motion:
That for the meeting of Tuesday, May 22, pursuant to rule 12-17, the chair be authorized to hold a meeting to receive and authorize the publication of the evidence when a quorum is not present, provided another member of the committee is present.
Do I have a mover for that motion? Senator Black.
All those in favour? The motion is carried.
We have five minutes to ask questions before we have to leave at 6:05. We can suspend, go for the vote, and as soon as you and I come back, we can reconvene, which will give other people more time to get over here.
Would you like to ask a question, Senator Gagné?
[Translation]
Senator Gagné: My question is for Mr. Doyon and Ms. Vinsant Le Lous. You mentioned that you have access to hydroelectricity. I know Agriculture and Agri-Food Canada said that carbon pricing could lead to an increase in the price of electricity paid by farmers in the provinces where hydroelectricity production is low. I know that is not really the case for Quebec and Manitoba.
[English]
Maybe for Alberta too. Could you comment on that? Do you think that would be the case for Alberta?
Mr. Jacobson: It is interesting that you talk about the difference in the price of carbon. A kilowatt of electricity in Alberta generates a different carbon footprint than the equivalent in Quebec or B.C. and that is because of the hydro part of it. The pricing of that is interesting as we go forward.
Right now, we are in a competitive electricity market where with the bidding system that we’ve got. With regard to electricity prices, though, when it comes down to it, the actual cost per kilowatt doesn’t mean that much to us, especially as irrigation farmers, whether its eight cents or 4 cents or 6 cents. That isn’t the big part. It is more the delivery and generation charges, which have to be brought under control. Something should probably be done on that end of it.
The actual price per kilowatt on that generation of power is not that important to us. It isn’t a big part of the bill for us.
[Translation]
Senator Gagné: Do you have any comments or is that not really the case for you?
Mr. Doyon: In Quebec, electricity pricing is managed by the board. There would not really be any negative impact.
Senator Petitclerc: I arrived sort of at the last minute. So I apologize if you have already answered this question.
In your document, you mentioned that the majority of the farming sector’s emissions are related to biological phenomena and that reduction goes through investments in research and development. Do you think enough is being invested in research and development? Are we on the right path? Can those types of investments have a significant impact?
Mr. Doyon: For example, heating could be replaced by solar energy, which has a very small presence in Quebec. The government should see what is being used elsewhere and how that can apply. Research budgets are needed to adapt what is being done elsewhere and find other energy sources. Perhaps something can be done with biomass. There are many forestry sectors. Other energy sources could be found through research and development.
Ms. Vinsant Le Lous: In addition, research and development would be very useful. So far, the agricultural sector has not managed to benefit from research and development because the results must then be reproduced on farms. It must be adaptable and adapted to farm sizes. That is something of a constraint of the offset credit protocols and phenomenon. We are headed more toward the carbon market. In some provinces, protocols are recognized and farmers can participate in that market. In Quebec, that is still not the case. There is also a discrepancy at that level.
Senator Petitclerc: Thank you very much.
[English]
The Chair: We have a bus waiting for us to go for the vote, so we will have to suspend our session at this point.
I know many committee members have more questions, but your statements were very detailed. I would like to thank the panel for being here this evening. We will be gone for about half an hour and then we will be back for the second panel. Thank you, folks, very much.
(The committee suspended.)
(The committee resumed.)
The Chair: We now have with us our second panel of the evening. I will start with introductions. I am Diane Griffin, chair of the committee and one of the senators from Prince Edward Island.
Senator R. Black: Rob Black from Ontario.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Woo: Yuen Pau Woo from British Columbia.
[Translation]
Senator Gagné: Raymonde Gagné from Manitoba.
[English]
The Chair: We have pretty good representation across the country here. That is great.
Our panel this evening will address the issue related to Part 5 of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018, and other measures, insofar as that part relates to farming.
We have with us representatives from the Newfoundland and Labrador Federation of Agriculture, Mr. Mervin Wiseman, President, and Mr. Paul Connors, Executive Director. Welcome, gentlemen.
And from the Dairy Farmers of Canada, we have Mr. Ron Maynard, a member of the board from Prince Edward Island, and Karen Clark, On-Farm Program Manager and Sustainability Advisor. Welcome.
We will give the floor first to Mr. Wiseman for his presentation.
Mervin Wiseman, President, Newfoundland and Labrador Federation of Agriculture: Thank you, Madam Chair. Let me say up front that after 38 years, I have been diagnosed with a farmer’s lung, so I am managing a cough. You will have to excuse me if I sometimes have to take a breather.
Thank you for the opportunity to speak to you regarding the proposed greenhouse gas pollution pricing act and its potential impact on agricultural producers in Newfoundland and Labrador.
My name is Mervin Wiseman. I own and operate one of the largest silver fox farms in the world, which is located in North Harbour, Placentia Bay, Newfoundland. I am the current President of the Newfoundland and Labrador Federation of Agriculture, a general farm organization which encompasses the full range of farming commodities, including supply and non-supply managed enterprises. There are approximately 500 farming enterprises, mostly family-owned, making up the farming constituency represented by the federation.
Compared to national farming standards, Newfoundland and Labrador represents a relatively small agricultural production footprint. The province imports approximately 90 per cent of its agriculture food supply. There is very little livestock production. Here again the province is currently importing close to 99 per cent of its livestock meat products.
In recent years, food security has become an important issue and hence an important priority for the present provincial government. Agriculture is being recognized, not just for the public good related to food security, but also for its economic and employment opportunities, especially in job-depressed rural areas of the province. The government has therefore created an ambition to double the province’s food self-sufficiency by 2022.
To solidify its policy position on food self-sufficiency, the Newfoundland and Labrador government has set forth a strategic plan, which is contained in its strategic Way Forward on Agriculture document. The 43-point plan will see significant investment by both public and private interests. Significant parcels of agricultural land have been announced and set aside, and industry has embraced the plan with a full range of collaborations with government in an effort to meet its targets.
Against this backdrop, talk of a carbon pricing plan creates serious discomfort for all those involved. Given that carbon-based fuels — mostly gas and diesel — already create a serious operational liability for farmers in Newfoundland and Labrador, any increases, no matter how marginal, will have an adverse effect on meeting the needs of farmers and the ambition created by government, as well as the expectation of the general public in meeting its food security requirements.
The environment of uncertainty on this subject is not helped by the lack of a coherent carbon pricing plan by the province, which keeps insisting it will soon be releasing it in preparation for the Canada-wide carbon pricing to come into effect by January 2019. Unlike other provinces like Alberta, Ontario, Quebec, British Columbia and Nova Scotia, and possibly Manitoba, who have managed to put some definition around their carbon pricing approach, Newfoundland and Labrador remains in a virtual no-man’s land on this important issue.
To date, the Province of Newfoundland and Labrador has only moved on monitoring, reporting and mitigation legislation and volunteer initiatives under its 2016 legislation called the Management of Greenhouse Gas Act. This act is exclusively tailored to respond to the few large industrial emitters currently operating within the province. Clearly, this situation creates an obvious default to federal legislation designed to meet Canada-wide greenhouse gas emissions by 30 per cent below the 2005 levels by 2030.
Since the federal government is prepared to be arbitrary in setting prices for those provinces that have not established a pricing regime in keeping with federal objectives, farmers in Newfoundland and Labrador, it seems, will be subject to the dictates of the federal plan.
Given the exemption provision in Bill C-74 for farmers, the federal pricing plan may very well be the best option for producers operating in the province. Only time will tell, but provincial legislation notwithstanding, there clearly needs to be a federal compatibility principle that gives assurances for all farmers in all provinces to have this provision in any proposed pricing legislation under any and all provincial jurisdictions. Otherwise, a serious inequity will creep in to create an unfair operating environment among provincial jurisdictions.
Insofar as the draft legislation contained in Bill C-74 is concerned, the Newfoundland and Labrador Federation of Agriculture, on behalf of its member commodities, are very encouraged by the farmer exemption proposition for gas and diesel. Like other provinces, we would like to see this extended to include propane usage. Propane gas is in widespread use in on-farm machinery in Newfoundland and Labrador, especially in enclosed operational farming structures both from a primary and secondary processing standpoint. While natural gas is not a readily available option for users in Newfoundland and Labrador at this time, future harnessing of these reserves in offshore areas will nevertheless change this at some point in the future.
Compatibility should also be a consideration in the application of farmer definitions to ensure all relevant farming activities are captured. We certainly agree with the national approach by all provinces and territories as expressed by the Canadian Federation of Agriculture that the Canada Revenue Agency definition, as it sits now, is well suited for this purpose. Likewise, having a mind toward the reduction of unnecessary duplication of documents to meet the test of eligibility or exemption is also a necessary consideration.
In conclusion, the farmers in Newfoundland and Labrador, as in other parts of Canada, recognize their contribution toward the problem of greenhouse gas emissions and therefore extend full efforts toward being part of the solution. Current prices paid for carbon-based fuels have already created an aversion and disincentive toward their use. Adding nominal increases will do nothing but exacerbate a heavy burden of liability and add operating costs that will become counterproductive to a developing and essential industry where the use of these fuels is a necessary function of operating in the first place.
The creation of investment funds from added GHG pricing strategies may very well be a good rationalization for this kind of option; however, other measures need to be structured into all aspects of a farmer’s operating environment. The adoption of best management practices aimed at reducing greenhouse gas emissions needs to be facilitated where possible. Using FPT agriculture framework agreements, for example, to achieve these and other objectives aimed at greenhouse gas emissions reductions needs to be a standard approach and an important consideration during the creation of these and other bilateral or multilateral national agreements among provinces and with Ottawa.
Thank you once again for accommodating these comments. I look forward to additional questions you might have regarding Bill C-74 and how it impacts farming and farmers in Newfoundland and Labrador.
The Chair: Thank you for your presentation.
We will now move to Mr. Maynard.
Ron Maynard, Member of Board of Directors, Dairy Farmers of Canada: Thank you, Madam Chair. I am a dairy farmer from Prince Edward Island. On behalf of the Dairy Farmers of Canada, thank you for the opportunity to share our concerns on Part 5 of Bill C-74.
DFC recognizes that climate change is an important challenge. We commend the government for taking climate change seriously and for promoting efforts toward greenhouse gas mitigation and climate change adaptation. We further recognize the consideration that the government has given the agricultural sector by exempting some farm fuels from the carbon pricing structure.
DFC also notes with appreciation that the government has excluded greenhouse gases of a biological nature from their pricing scheme. We understand the importance of addressing these emissions and managing climate change impacts. This is why, as an industry, we have been directly investing in research on mitigation emissions from 2002 and continue to prioritize research in this area.
Between 1990 and 2016, the Canadian dairy industry reduced its carbon footprint by 12 per cent. However, both milk production and demand increased over this time, which has resulted in a corresponding 23 per cent decrease in greenhouse gases per litre of milk produced. Put another way, preliminary data from a life-cycle analysis of Canadian milk that is currently under way has estimated that the average carbon footprint of a litre of Canadian milk is 0.91 kilograms of CO2 equivalent. This is an improvement of roughly 8 per cent on a per-litre-of-milk basis in the last five years. It is among the lowest carbon footprints for milk in the world. This reduction comes from efforts by Canadian dairy farmers to improve on-farm productivity and adopt beneficial practices such as reduced tillage and sound nutrient management.
Dairy farmers recognize the need for climate change action; however, all actions need to be balanced and fully assessed. In agriculture, programs to help reduce emissions should be applied carefully to avoid weakening the ability of farmers to make investments in energy-efficient technologies, renewable energy or other beneficial practices and innovations, many of which already have a long payback period. Any additional costs of production that result from a carbon price represent that much less money farmers have to use to make these types of important investments. For example, on my farm, we were able to invest in wind energy, solar hot water, variable-speed vacuum and transfer pumps, and plate coolers.
In our full submission to the committee, we have noted in detail the impacts that carbon pricing will have on the Canadian dairy sector. In today’s presentation, I will focus on a few specific impacts and recommendations.
First, only some farm fuels are exempt, with natural gas being the most notable exception that will still be subject to the carbon price. Many dairy farmers grow their own crops and dry their grains using natural gas. What is already a hefty expense each year will only increase. Grains provide an important energy source for cows, and including grains in a cow’s feed generally decreases enteric methane production. DFC asks the government to exempt all farm fuels, including natural gas, from paying a carbon price.
Second, provinces where the grid mix includes fossil fuels will see an increase in electricity prices. The act does not include rebates on electricity used by farms. DFC encourages the government to consider introducing a rebate program to offset some of these costs.
Third, the definition of “eligible farming activity” and “farming” in the act is unclear. The definition of “farming” includes tillage of the soil and dairy farming, but it is not clear whether the use of custom operators, employed for activities such as fertilizing, spraying, manure-hauling and harvesting, would be included. DFC recommends ensuring that the definition is expanded to include work completed by custom operators.
In addition to those I just outlined, we would also ask the government, one, to ensure that opportunities for revenue recycling and participation in offsets programs are easily accessible to all farms, regardless of size; two, to continue to invest in research in greenhouse gas mitigation and climate change adaptation; and, three, increase support for knowledge translation and transfer initiatives that will help the adoption of practices that reduce on-farm emissions.
I’d like to end by noting that when considering the impacts of this bill, it is important to recognize that dairy farmers are already facing a series of domestic and international challenges relating to government work and policy. These include the uncertainty around NAFTA, which would add to the impacts of the previous trade deals, such as the CPTPP and CETA. It also includes front-of-package labelling and the Healthy Eating Strategy, which erodes consumer perception of nutritious dairy products. The cumulative impact of these policies is significant and runs counter to the government’s publicly stated desire to see a thriving agri-food sector, including dairy.
The sustainability of our environment is of critical importance. Canadian dairy farmers will always take great pride in our responsibility as stewards of the land, water and air, and seek to continuously reduce the environmental impacts of our farms over time.
Thank you for the opportunity to make this presentation.
The Chair: Thank you for your presentation.
We will now move to questions, starting with the deputy chair.
[Translation]
Senator Maltais: Welcome. Newfoundland farmers do not often appear before Senate committees. Aside from the ongoing presence of your advocate, Senator Doyle, and the clerk, Kevin Pittman, we don’t often have people coming to talk to us about agriculture in Newfoundland. However, our committee did go meet with Newfoundland farmers about four or five years ago.
Thank you for your briefs, which are very important. While listening to you, I realized that you have a large agricultural industry in Newfoundland. However, I did not hear you say anything about the effects of the carbon tax on the fishing industry. The industry is present in Newfoundland; it should be known and seen.
Perhaps Newfoundland farmers will make their demands known through other committees, but I wanted to point it out, as this will also affect them. How? I cannot say and perhaps you can’t either this evening, but at some point, some day, you can talk to us about it.
Fishing products excluded, do you export a lot of agricultural products to other provinces, to the United States or to other countries, or are those products kept for the exclusive needs of Newfoundlanders?
[English]
Mr. Wiseman: Thank you for your comments. Isn’t it funny; I just turned to my colleague Paul on the way here from the airport and said that I didn’t notice anything on exemptions for fisheries. We are here to talk about agriculture, of course, but it really struck me. It does stick out like a sore thumb.
I was raised in a fishing family and community. Fishing is synonymous with the province, and how can you not raise that important issue? So thank you for putting it on the radar and I hope we hear more.
As I indicated in my presentation, we import 90 per cent of our agriculture food products into the province. We’re producing very little. As I indicated on the livestock side — red meat, for example — we actually import more than 99 per cent. It’s just a small fraction that we raise in Newfoundland and Labrador, and that’s too bad because it has significant potential.
The value of our industry is around half a billion dollars and 6,200 downstream and direct jobs, and that’s significant. With the ambition to increase food self-sufficiency by 2022, to double that, we hope to change all that.
But the commodity sector that I work in, fur, of course, we do export. It’s an international marketplace, and we export not only outside the province but outside the country, especially to China and Russia.
[Translation]
Senator Maltais: Thank you for those explanations. It is very interesting. Like all the other provinces, you must have a problem with farm succession. That is Canada’s issue of the century. Mr. Maynard will talk to me more about that later, but you must be feeling it in your province, as well. In a province like Newfoundland where, as you say, agriculture is limited, do these new taxes on carbon represent obstacles for young people who want to take over from their parents, according to your experience?
[English]
Mr. Wiseman: It will be a contributing factor, there is no question. I mentioned the serious aversion and the disincentive to use gasoline and diesel. In a budget a couple of years ago in Newfoundland and Labrador we were hit with a surcharge of 19 cents per litre. It had nothing to do with carbon pricing at the time, but people just ran from it. As you say, a lot of people made some serious and thoughtful decisions about whether or not they should stay in Newfoundland and Labrador, and that has an impact.
As things start to layer, we’re not sure which straw or which part will break the camel’s back. But as we layer one on top of the other, we just keep eating down. There is an awful lot of uncertainty as to how we will go on carbon pricing.
The exemption part is very appealing, but if the province develops its own made-at-home pricing regime, we’re not certain how that will fall out. I know there is a move to make it cost neutral to farmers. The rest of the industries like fishing, I don’t know. However, it is infinitely important.
[Translation]
Senator Maltais: Thank you very much.
Mr. Maynard, dairy producers are important in Canada. That is a very large industry, especially in my province and in other Canadian provinces. All dairy producers are going through the same issue: they are in limbo. Some provinces have already adopted a carbon pricing system. I am thinking of Quebec, Ontario and other western provinces, such as British Columbia.
What remains to be seen is the consistency of that tax. Other stakeholders have told us that this was a problem. Should carbon tax in Newfoundland be the same as in Quebec or in Ontario? Because the production is not the same. The costs are higher. Could a modulation be applied? I will let you answer later.
You also brought up something that Canadians are not aware of, but they will learn it at some point at the grocery store. All taxes on inputs, such as natural gas and gasoline, must be passed on to someone by the farmer or the dairy producer, or else they will have an operational deficit. The consumer will probably be the one who will pay for that. Farmers are covered by supply management in Canada, but consumers are not covered by anyone. They are part of a free market. To maintain farm production, dairy producers have to make sacrifices. They must pass the costs on to someone, or the economy will not work. Will consumers buy less milk or dairy products? That remains to be seen.
What I am worried about, and you pointed it out, Mr. Maynard, is the recycling of fees. How do you view that for dairy producers? What fee system would you prefer to have for the dairy industry? Would that be only in research or would there be other ways to do it?
[English]
Mr. Maynard: Thank you very much for your question and comments, senator. I think we have got to look at a number of aspects and say that the consumer ultimately will pay, but our concern here is that we also have to compete on a certain portion with the world market. As I said, in my comments with regard to CETA, the TPP and now with NAFTA possibly, more and more of our production has to meet the world market, and there’s no price on carbon in the world market. That puts our farmers at a loss and a disadvantage. I think continued government support for research and investment is critical.
On my own farm where I used wind energy and solar panels, those are all programs that have long-term pay back. I was able to take advantage of some government programs, which I thank the people of Canada for very much. But these long-term programs are for the reduction of greenhouse gas. If you look at what greenhouse gases are — carbon, nitrogen, hydrogen and oxygen — the only thing free on my farm is oxygen. Everything else I have to pay for, and the most efficient way to utilize that is the bottom line for my farm, and other farms are the same. To improve that efficiency and management is critical.
[Translation]
Senator Maltais: With the agreement we concluded with Europe recently, there are many dairy by-products. We are talking about yogurt, butter, cheese and so on. I know that Canada has its place in the European market. Will Europeans be subject to the same tax as us? I don’t know. I don’t know whether you know. However, a balance must be maintained in terms of taxation, or by-products from your dairy farms will no longer be competitive on the European market. We are talking about 20 or 25 products that are easily exported. If you are taxed too heavily, it is like a merry-go-round. Will you manage to remain competitive and sell in European countries with that tax? I would like to get your opinion on that.
[English]
Mr. Maynard: The problem in competing with the European countries is that carbon tax is one of the aspects of it, but we are not competing with the European farmers. We are competing with the European subsidies program. If we look at the small amount of dollars that the dairy farmers get from greenhouse gas programs in Canada compared to my colleagues — I’m also on the board of directors of the International Dairy Federation so I deal with my European colleagues — they say clearly that a cheque is a cheque is a cheque. Whether it comes from the consumer, from the processor or from the government, it all goes to the same account. When you talk about competing with Europe, you’re competing with the treasury of the European Commission.
Senator Doyle: Thank you for being here. I’ll follow up on Senator Maltais’ question.
The one question that is quite common in all of our meetings is what the effect of a carbon levy on our Canadian farmers will be if there is no carbon levy on your competitors. How extensively have you lobbied the federal government in this particular area? We’ll be drafting our report and making recommendations on these things as well. Have your agricultural associations approached the federal government in any official way to make that known? If so, what was the reaction?
Mr. Maynard: We most certainly have. We appeared in front of this committee previously and expressed our concern about the effect of the carbon tax.
We have also spoken to MPs. We consistently speak with MPs and this is one of the issues we speak with them about. We’re saying that the rebate program has to be available to all farms.
And we talked about some cap-and-trade programs before. A number of years ago we did a study on the Alberta scheme they have out there. We looked at 50 farms in detail. With the requirements that the farms had to have in order to meet the criteria to get credits, only one of the 50 farms that had that criteria, the detail you had to have in order to qualify. That’s a concern that we have. And it is one of the top two or three farms in Alberta. They’re very precise and detailed people.
Senator Doyle: Would you be concerned that even if you receive a farm fuel exemption, the levy will add significantly to the cost of other items in your supply chain that may work its way back and cause a lack of competitiveness?
Mr. Maynard: Yes. If you look at greenhouse gas, I spoke a second ago about the gasses that come in — nitrogen, hydrogen and carbon. That’s in fertilizer and in feed. That has to be transported to the farm. That’s going to increase the costs.
And with transporting milk, the dairy farmers pay for transporting milk from the farm to the processor. That’s not part of the exemption, the transportation.
It will work back into our pricing. As we were saying, it will work back into our bottom line. And if you have less than the bottom line, then you have fewer dollars to reinvest in technology that reduces greenhouse gas.
Senator Doyle: We will eventually write our report. If you had to choose a recommendation or two to put in our report to the federal government, what would they be?
Mr. Maynard: To continue to invest in research in order to assist farmers in transitioning and adapting to new technologies. That would be one aspect of it. And as I said before, if there is a cap-and-trade program, ensure that farmers have the ability to access that, not to complicate the heck out of the matter. Those would be the two main priorities.
Senator Doyle: Right.
Our province is about to see electricity rates go up dramatically because of the budget overrun on Muskrat Falls. It’s a hydro project, so it’s clean power. It’s exempt from a carbon levy, I would imagine. Would the projected increases in the power rates of Muskrat Falls have any negative effect upon what little farming we do have in Newfoundland and Labrador?
Mr. Wiseman: It’s a no-brainer. We are so worried. We’re looking at 11 cents a kilowatt hour now, and just to service the debt within the next year, as it comes on stream, that’s going to go to 18 cents. And that’s just the start, with projections up to 28 cents a kilowatt hour, more than double. We are going to be absolutely blown out of the water. I don’t know how we are going to manage it, quite frankly.
With the carbon tax approach, I don’t think anybody understands the full impact because I don’t think you can really calculate it. It layers and snowballs.
Transportation is an inequitable application when you boil it all down. Just to reach Newfoundland and Labrador with all the things we have to import, the transportation cost is incredible, from the ferry operations and the transport trucks across the province. So it’s not just an exemption for me and my little farming operation. It’s all the layers of impact, like the feed that I give to my animals. It just goes on. You can just imagine.
The whole process is complicated, too. It is not easy to understand for the ordinary person. I certainly don’t fully understand it. Paul and I were talking about it coming here. It’s complicated. How do you get your mind around it? Can people appreciate what they’re up against? Can the public fully appreciate if they don’t understand the whole concept, the language and how it all translates? I don’t know. The hydro, Muskrat Falls? We’re doomed.
Senator Doyle: A 100 per cent increase is in the offing.
Given that, you would naturally anticipate the need for electrical subsidies, especially for people who engage in farming. And again, what little we have will remain little if something is not done to curb debt costs.
Mr. Wiseman: No question.
The other part is that someone needs to get creative in understanding what we were up against in trying to reduce greenhouse gas. On farms, we can’t produce alternate forms of energy because we have no system to get into the grid. There is actually a bill that gives Newfoundland Labrador Hydro control over any alternate energy sources that I would want to put forward, whether it’s anaerobic digester, solar, wind turbines and so on. We are limited to such a small, minute part of that piece of action that could actually reduce greenhouse gas, but by law we are prohibited from doing it.
Let’s go there. Let’s get creative there. If I put wind turbines or solar on my farm and if I invest in that and if the Government of Canada can invest with me, I think we are further ahead. As it stands now, we have a veto power given to a hydro company that will charge us exorbitant rates to purchase power from Muskrat Falls. It’s a serious conflict of interest and there’s not much we can do about it. We were talking about carbon tax. This goes much deeper than carbon tax.
The Chair: On that sad note, can we move on?
[Translation]
Senator Dagenais: I’d like to thank our witnesses. My question is for Mr. Maynard.
Mr. Maynard, you did a good job of explaining how complicated it is to complete the forms when your members apply for credits. When the carbon tax was imposed on you, it doesn’t seem as though you were given much in the way of details. The tax was simply dropped on you. It’s always easier for a government to levy a tax than to hand out money.
You’re a major player in the agricultural realm, and you have to deal with the carbon tax. How much did the government consult your organization before subjecting you to the tax? The government claims that it consults Canadians extensively and that it listens to them. Were you consulted before the government applied the carbon tax to you?
[English]
Mr. Maynard: We have been working with the government from 2002 on the greenhouse gas mitigation file. The carbon tax was something that came along. It surprised us a little, I guess you could say.
The consultation probably was more than we have seen in some other files, like front-of-package labelling, for example. I think your comment is very clear. We are not clear on how it becomes revenue neutral. That is why we were saying there is concern for the small farms. How do those small farms get the recycling dollars aspect of it? That is something, as you have just said, that is very easy to tax, but how do you get that revenue neutrality back to the farmer? That is something that we have concerns with.
[Translation]
Senator Dagenais: As you so clearly said, you are facing economic uncertainty because of what the government is doing. It has imposed the carbon tax on you, not to mention the fact that NAFTA has yet to be resolved, as we all know. The U.S. administration is more interested in resolving its issues with the Chinese. The NAFTA negotiations have taken a back seat and may or may not be concluded in 2019. You also mentioned the new labelling requirement.
Have you thought about putting a price tag on how much you expect the changes to cost you? They will raise your production costs and make it harder for you to compete. Today, the considerations are many: NAFTA, the Trans-Pacific Partnership and the Canada-EU Comprehensive Economic and Trade Agreement. On top of that, we know our neighbours to the south are subsidized in a different way and don’t have to worry about a carbon tax hindering their competitiveness.
Have you put a price tag on the impact all of that is likely to have? The product labelling requirement is another factor that will put a squeeze on you financially. Is that something you’ve measured?
[English]
Mr. Maynard: You are correct on the front-of-package labelling. We will have to create new labels. The government has indicated there will be that cost. They mentioned themselves that the unqualified cost is the marketing cost. It perplexes us to no end that, on the one hand, they are saying there has to be a label on nutritious dairy products because they don’t fall within that 15 per cent of a daily diet pertaining to salt, sugar or saturated fat. But, on the other hand, the Health Canada review itself said clearly that dairy products are associated with bone health, reduced risk of heart disease, hypertension, stroke, Type 2 diabetes and colorectal cancer. These are the same diseases they are saying front-of-label packaging is supposed to assist with regarding health costs.
So on the one hand, they are saying they need front-of-package labelling to stop people from buying the product, and there will be an effect of decreasing sales because if people see a stop sign on a label they will think, “Do I really want to buy that product?” On the other hand, Health Canada clearly says that these are products you need to consume — and we know Canadians aren’t consuming enough nutritious dairy products — to offset some of these health problems.
Carbon pricing is one aspect of it, but front-of-package labelling is totally confusing. Eighty-nine per cent of dairy SKUs will have a warning label, yet diet pop and potato chips, because they don’t meet the serving size requirement, won’t have warning labels on them. We are totally perplexed that they have exempted certain whole milk products because they recognize their own research, yet they are not doing the same with yogurts and cheeses and other nutritious dairy products. That is confusing to us.
[Translation]
Senator Dagenais: I’m going to have a go at another question. As you know, the current government intends to legalize marijuana. Would you be supportive if the government were to redistribute a portion of its marijuana profits to you in the form of assistance? It may not be tied to agriculture, but all the same.
[English]
The Chair: I think we’re out of our terms of reference here, folks. Do you have another question?
[Translation]
Senator Dagenais: It ties in with the work of the Committee on Social Affairs, Science and Technology. I’ll go to the other room.
[English]
Senator Woo: My first question is for both groups and the subsequent questions are probably more for the dairy farmers group.
The first one has to do with the definition of agriculture. Both of you raised the issue. You pointed out that some custom work should be included. I would note that in other provinces custom work is included as eligible farming activities.
I wonder if our witnesses from Newfoundland have specific examples of what they think should be qualifying activities that they fear would not be under the current definition.
Mr. Wiseman: We have been pretty much staying on message with this one with our national organization. As our colleagues from the Dairy Farmers of Canada pointed out, these illustrated examples apply not just to the area that he comes from but to Newfoundland and Labrador as well.
We have done very well under the CRA definition. I simply can’t understand why we wouldn’t take that and make that compatible with this one. Why would we differentiate? It just brings an element of confusion in and an unnecessary element of uncertainty against an uncertain future for this tax anyway. Again, it just layers the complexity.
Senator Woo: Would you agree, Mr. Maynard, to use the CRA definition?
Mr. Maynard: I think the problem is that it’s not clear on this, and that is our question. Down the road will someone say that it is not in there so it is not? It is the lack of clarity.
If we look at moving to reducing our footprint, many times, a number of farmers working together to increase the size of their equipment and to improve efficiency is a way of reducing our carbon footprint. To disallow that is a negative aspect of it.
We are just saying let’s make sure that it is clear and in there.
Senator Woo: Would you support using the CRA definition of agriculture, or do you have a view on that? You don’t have to take a view if you don’t want to.
Mr. Maynard: We’ll clarify that. I am not sure of the CRA, but we are members of the Canadian Federation of Agriculture, so, yes, I think so.
Senator Woo: That sounds like something that the regulations could take care of, but it’s certainly a point we could make to ensure that the regulations do provide the best definition.
If I could move to a slightly different question on the issue of competition from imports, a number of senators have asked, particularly your colleagues from dairy, about the threats you face from imports. You have also raised the impending challenge because of CPTPP, as well as CETA.
Could you clarify for the sake of the committee what market share has been opened up because of these two agreements? What is the size of the Canadian market that is open to competition from CPTPP and/or CETA?
Mr. Maynard: Don’t quote me on these figures, the exact numbers, but we were very clear that, with CETA, it was basically 2 per cent of our quota, with the importation of the cheese. With the CPTPP, it came down to 3.25 per cent of 2016’s level. So we’re looking at 5.25 per cent. We were already allowing about 6 per cent of the market beforehand. Now we’re looking at over 10 per cent of the Canadian domestic market being filled by exports, which is far in excess of a lot of other countries, especially some to the south of us.
Senator Woo: You alluded, in your presentation, to what would be expected in the supply-management industry, responding to external competition, which is to limit supply. You have that ability. That’s the nature of the system we have. It’s different from other industries. You can actually pass on some costs because you have a supply-managed system. Would that not be a response by the industry? You alluded to it in your report.
Mr. Maynard: You can pass on — remember, this is controlled imports; there are other imports. As ingredients become a greater part of the dairy world — we are seeing that more — milk protein concentrates, isolates, and things like that, there’s no —
Senator Woo: You are especially thinking about NAFTA now?
Mr. Maynard: Anything, from any country. There are no restrictions on imports of these products. If we want to keep the Canadian market, we have to match the price.
Senator Woo: Did you want to add to that?
Karen Clark, On-Farm Program Manager and Sustainability Advisor, Dairy Farmers of Canada: If any of this is passed on to consumers, it is our concern that they then say, “Now my milk that was once $4 for four litres is now more, and this is getting expensive.” So we don’t want to be discouraging. We really believe that milk and milk products are part of a nutritious and sustainable diet.
Senator Woo: I would be the first to complain, but it is the nature of the supply-management system that you have that ability, which is different from other industries. I am not saying you should do that.
My last point is really a comment. We’ve heard a lot about how much you have lobbied the federal government and many of the concerns that you’ve raised. I’m sure you are thinking about this already, but many of the challenges you have articulated are within the provincial jurisdiction and the ability, particularly in Newfoundland and Labrador, to come up with the design of a carbon tax or cap-and-trade system that is roughly consistent with the federal framework. The federal framework, as far as I can see, is very flexible. It allows for all kinds of exemptions, including exemptions from farming.
Not to pass the buck here, but the way this is designed, the whole framework for carbon pricing and climate change, is to allow flexibility for provinces to adapt to their circumstances. In some sense, many of your suggestions may be more appropriately directed at the provinces than at the federal level. That is just a comment.
Senator R. Black: Thank you for being here this evening, and thank you for your testimony.
Very quickly, what suggestions would you have to mitigate the interprovincial unevenness that you and others have talked about in earlier testimony and thereby level that playing field across Canada, if not outside of Canada at least across the country? Any suggestions?
Mr. Maynard: That is one of the aspects we are concerned about. In Canada, we get basically the same price for our milk. Now, Newfoundland, because of their extreme transportation costs, gets a little more, but in Eastern Canada, in the Maritimes, Ontario and Quebec, all farmers get the same amount for their milk. Yes, we would very much like to see a consistent program across the country.
I am from Prince Edward Island. We have looked at the cap-and-trade program on Prince Edward Island. We have lots of people willing to sell, but there are no large emitters that are willing to buy. The province of Prince Edward Island looked at trying to work with Nova Scotia, and it didn’t work out. Newfoundland doesn’t have a program; Prince Edward Island doesn’t have a program either. What will come back? It may very well be the federal system that we’re faced with. It is a concern.
Senator R. Black: Any suggestions to level that?
Mr. Maynard: Once again, we will be lobbying our provincial governments. I guess the federal government can mandate some things, and they may very well have to mandate this.
Mr. Wiseman: It may very well rationalize why provinces like Newfoundland and Labrador — and I am sure there are other unique circumstances in geography — would dictate that we have a cost-neutral situation on carbon pricing. Most provinces would have a system in place.
There are some serious dilemmas being faced by our province. As a government, as the public, we want to do our part. I know our province would want to do our part. But, if we have to — again I use that word — “layer” another cost on top of what we already have, we just add to that inequity.
I don’t think you’ll ever do away with the inequity. What can you ask for? A transportation subsidy to level the playing field? We already get some transportation subsidies when you look at Marine Atlantic and things like that. How far do you go with that? We certainly have suggestions there, but we have a serious bone to pick with the province and with the government in the province on how to best deal with that.
In terms of the larger picture, I do not fully understand exactly where a province would have to be before they were considered to be a major contributor to solving the greenhouse gas emissions problem. Does a province like Newfoundland and Labrador, because of our development of hydro electricity, which is considered green, give us a cost-neutral status? Maybe it does. I think it does. That is the bigger and broader picture. Should we be talking about those bigger issues? Newfoundland and Labrador is not ready for a carbon price that’s going to put one single cent or half a cent on anything.
Mr. Maynard: If the federal government can’t control the tax, they will have to control the offsets to ensure this is neutral in agriculture across the country. It may not be simple, but that is the fairest way.
The Chair: I had a few questions but will forgo them. I would like to thank the panel for an interesting discussion. Thank you for your patience. We made you wait for us this evening as we suspended for the votes, but everything has worked out well in the long run. Thank you so much for your presentations. We greatly appreciate them.
As our final witness of the evening, I would like to welcome Dale Beugin, Executive Director of Canada’s Ecofiscal Commission. I invite you to make your presentation and then we will have one question each because, as you know, we have gotten caught in a time crunch this evening. We thank you for your patience waiting for us as we had to go off to attend various votes in the Senate Chamber. The floor is yours, sir.
Dale Beugin, Executive Director, Canada’s Ecofiscal Commission: Thank you very much. It is my pleasure to be here. Thank you for having me.
I represent Canada’s Ecofiscal Commission. The commission is a panel of high-level economists from across the country brought together by the belief that good policy can make sense for both the environment and for the economy.
The commissioners are backed up by an advisory board that represents high-profile people from across the political spectrum, from various political parties, from all levels of government,and from industry and civil society. Those advisers are unified by their belief that good policy can make sense for our environment and economy.
Our research and analysis have clearly found that carbon pricing is such a policy, that it is the lowest-cost way to achieve environmental objectives. We have done extensive analysis over the last few years as to how to design carbon pricing well.
Today I want to highlight a few specific dimensions of carbon pricing for you. First, it is effective and it works. We know as economists that prices affect behaviour in lots of ways all through the economy, and carbon is no different. When there is a price on carbon, businesses and houses look for ways to avoid paying that price, and as a result they find new ways to reduce their GHG emissions. You can extrapolate that effect all across the economy, and that is the mechanism by which carbon pricing drives lowest-cost emissions reductions.
The key to carbon pricing is flexibility and incentives. Those flexibilities and incentives drive those changes in behaviour both now as well as into the future. They also create incentives for innovation over the long term. The development of new innovative technologies and practices will reduce GHG emissions at lower cost.
There is plenty of evidence that carbon pricing works from the various jurisdictions that have tried it and experimented in it. Here in Canada, the B.C. carbon tax in place since 2008 provides lots of data that is useful for economists like the Canada’s Ecofiscal Commission and myself to parse out what that price has done to the economy and GHG emissions. The statistical evidence is pretty clear: In the absence of British Columbia’s carbon tax, GHG emissions would be 5 to 15 per cent higher, vehicles would be 4 per cent less efficient, and gasoline demand would be 7 to 17 per cent higher.
Why do we care about these things? Because our federal government has established a target for GHG emissions, but also we seek to avoid the worst of the impacts of climate change by contributing to global efforts to reduce our GHG emissions.
I should have noted at the beginning that I am not an agriculture expert so I will focus mostly on the bigger picture for the economy as a whole, but I will weave in specific agricultural context.
I will add here that avoiding climate change is extremely important to the agricultural sector. There will be significant impacts from a changing climate on the productivity of agriculture and costs from extreme weather events that will become likely more frequent with more emissions globally.
Second, carbon pricing is the lowest-cost way to reduce GHG emissions. Every other policy approach available to reduce GHG emissions will cost more. We could rely on regulations that require specific emissions reductions in specific sectors or technologies, but that lack of flexibility means those policy approaches will cost more than carbon pricing.
We could rely on subsidies that pick out specific technologies and provide incentives for businesses and homes to adopt those technologies. Again, that approach will cost more and tend to achieve less. It requires picking specific winners and typically requires paying out the subsidies to businesses and individuals that would have adopted those technologies even in the absence of the subsidy, making them cost more and drive fewer reductions per dollar.
British Columbia’s experience suggests that the costs of the carbon tax, which rose to $30 per tonne, have been very small for the economy. We haven’t seen any significant impact on the economic growth in the province. Our own analysis using economic modelling suggests that even the carbon price rising to $100 per tonne by 2027 would only reduce the rate of economic growth by one tenth of a percentage point at worst and much less if revenue were used in useful ways and in particular used to cut existing taxes.
There is evidence for agriculture here as well. The B.C. experience has provided good data. A couple of economists at the University of Ottawa have done an analysis and found that the agricultural sector has not been adversely affected by the B.C. carbon tax and that the exemption that system gave to greenhouse growers was probably not merited and unnecessary. In fact, the full price would have been better applied to those emissions as well.
Let me close with a few specific points on agriculture. I will note that agriculture makes around 10 per cent of Canada’s GHG emissions. That is a significant chunk of our overall emissions. One of the first principles in designing carbon pricing policies from an economics perspective is that broader coverage is better. If you apply that incentive consistently to a large number of emissions, you get more emissions reductions and lower cost of those emissions reductions. It ensures that no low-cost emissions reductions go unrealized. That is first and most important principle of carbon pricing policy.
That said, there are practical reasons to exempt some of these agricultural sources from the carbon price and measurement is chief amongst those. Lots of sources of GHG emissions in the agricultural sector are from so-called non-point sources, small individual livestock or practices. It is difficult to measure GHG emissions from those individual sources. That’s in exact contrast to measuring GHG emissions from fossil fuel combustion, which can be connected precisely by volume of fossil fuel and type of fossil fuel. Because it’s hard to measure those emissions, it is difficult to include them in the pricing system. That’s one of the reasons they have been exempted from the carbon pricing in this bill but also in the carbon prices in various provinces that already have systems.
The existing system exempts on-farm fuel, as the previous panel discussed, and as a result less than 20 per cent of GHG emissions in this sector are covered by carbon pricing. In short, the benchmark for the sector is already lower than would be economically optimal, all else being equal.
The last point about agriculture as a sector is to note that this has been unusual because there are also some benefits for the sector from the policy, and the benefits take the form of potential offsets. Because it’s hard to include all of these agricultural emissions directly in the carbon price, it opens the door for complementary policies or regulations that will try to access those emissions reductions or offset regimes, as the bill proposes and that some provinces have made use of.
That offset regime provides a potential cash flow benefit for individual farmers that again dilutes the net cost of the policy to those individuals. There is a strong record in Alberta of an offset market and offset methodologies defining specific ways those offsets can be generated and used in a carbon pricing system in the Alberta system. Those offset methodologies include tillage protocols, to manure management and various other practices. That system is quite robust.
I look forward to questions and responding as needed with more details.
The Chair: Thank you for your presentation.
Senator Gagné: That is quite interesting. You mention that even increasing the carbon tax to $100 a tonne would probably have a very minimal effect on the economy.
I read a couple of other articles — and I do not have the source, sorry — saying that even going over $30 and $50 is also quite critical and would affect the economy. That is your modelling system. You’ve published those reports or studies. Where do you get your facts compared to the evidence being presented by other economists?
Mr. Beugin: Let me put this in context with the PBO’s report that came out earlier today, and that was a reissue of the report. The PBO uses our numbers, cites Canada’s Ecofiscal Commission’s numbers. We have been engaging with the PBO through direct conversations but also through various Maclean’s op-eds about the fact that likely that PBO estimate of around $10 billion per year — which isn’t actually hugely large for the economy as a whole. It is actually within the same zone of impacts as we’re talking about. That being said, the PBO still used the worst-case scenario in terms of revenue recycling from our analysis.
How you use the revenue and recycle revenue back to the economy has big implications. From a macroeconomic perspective in terms of these impacts for economic growth, the most costly approach is to use every dollar revenue to cut cheques for Canadians. You could give rebates that would not undermine the incentive. It’s a legitimate way to recycle revenue, but it would be using that money to give it directly back to people.
Alberta is using this approach for their carbon pricing but not for everyone. About 60 per cent of households will get a quarterly cheque funded by revenues. Using that approach, economic growth out to 2030 goes from around 2 per cent per year without any policy to around 1.91 per cent with that policy. You have a negative cost, but not a huge negative cost. If instead you used that revenue to reduce corporate income taxes or personal income taxes, then the impacts on growth are still negative slightly but almost negligible.
Senator Gagné: I have another question. Do you feel that consumers respond differently to carbon taxes than they do to the normal fluctuation of gas prices? We’ve seen a lot of fluctuations in the past five or 10 years. Do we, as consumers, react differently?
Mr. Beugin: The evidence says we do. Statistical analysis that looks at responses to the B.C. carbon tax says exactly that; we respond more strongly to the carbon price than we do to changes in energy price. Part of that may be the permanence of the price, that it can be expected to stay flat rather than be uncertain in terms of future fluctuations of energy prices. Part of it might be expectations of higher prices in the future. When you are, as an individual or as a business, planning your investments in new vehicles or new furnaces or new farm equipment, then you are planning around not just the price of carbon today but the price of carbon in five and 10 years. So those expectations can drive stronger changes than simply higher energy prices.
Senator Gagné: Thank you.
[Translation]
Senator Dagenais: Thank you, Mr. Beugin. I’m a bit sceptical when it comes to the revenue the carbon tax will generate for Canadians. Whenever a tax is levied, we feel it. You say that the model is working in countries smaller in size than Canada and with less regional diversity.
Clearly, the carbon tax is going to create regional disparities. What do you find so appealing about the measure? We’ve heard that farms will be hit hard by the tax. What makes you say that it will work?
[English]
Mr. Beugin: Economists are notorious for being excited by efficiency and boring things like that. It does come down to outcomes in terms of achieving the objectives we set for ourselves and contributing to global emissions reductions.
I think Canadians don’t want to be free riders. They don’t want to sit back and watch the rest of the world take action to reduce GHG emissions. They want to address our own emissions as well, but I think at the same time, they want to do so at the lowest cost.
There are other approaches to reducing GHG emissions. We could choose as a country to regulate specific sectors, even within specific regions. Not only would those approaches cost the economy more and affect economic growth more, but they also require somewhat arbitrary choices about where policy should focus its attention in terms of certain sectors and specific regions.
The carbon price requires no information from government. It does not require our officials to assess where lowest-cost emissions might be or where emissions reductions should come from in the country. Instead, it sets a consistent price, as broadly across the emissions as possible, and it lets markets do that work for us. It lets the market respond and identify where abatement is lowest cost. So in the circles in which I run, that is exciting.
[Translation]
Senator Dagenais: We are being told that the tax will be accompanied by offset measures. Don’t you think we should know what those measures are before just agreeing to levy a tax? The government wants to levy a tax, and yet, we know absolutely nothing about what the offset measures will be. I would like the government to reassure people by making very clear what those measures will be. A lot of things are being said, but we never hear anything concrete about the measures. Do you think that’s normal?
[English]
Mr. Beugin: It’s an interesting argument for sure. Just to be clear, by offset measures, you mean choices in using revenue and revenue recycling; is that correct?
[Translation]
Senator Dagenais: By offset measures, I mean, for instance, saying to farmers, “You will be subject to a carbon tax, but don’t worry, because we are going to recognize your efforts and we will help you if your equipment costs go up.” So far, the government has not said how it will help them. They are left waiting, not knowing whether they will benefit from offset measures. In practical terms, they don’t know whether they are going to receive reimbursements for diesel or what have you. That doesn’t seem normal to me.
[English]
Mr. Beugin: Federalism is an interesting context for carbon pricing and has led Canada to a solution that is unusual and also somewhat sensible. The bill you’re discussing today very deliberately leaves the revenue recycling choice to the provinces. That has two major advantages and both are significant.
On the one hand, it ensures that revenue is not redistributed between provinces. It ensures that revenue generated in Alberta is not recycled in Ontario. That particular problem has been flagged as a non-starter in previous carbon pricing proposals discussed in our country. I think by avoiding it, it avoids certain interprovincial conflicts that are important.
Secondly, it also allows provinces to customize their approaches to revenue recycling and support in ways that make most sense according to their own context.
The provinces are extremely different in terms of their emissions profiles, in terms of their households and existing tax rates, in their structure and in what sectors are most strong and important. By leaving the recycling decision to the province, it allows provinces to make choices that make the most sense in their own context for their own problems while ensuring that the price of carbon is roughly equal across the country. That’s where the efficiency comes back. That’s where we get the lowest-cost reductions, by having consistent pricing across the country.
[Translation]
Senator Dagenais: You’re saying it’s an advantage, then, because it gives each province the ability to tailor the tax to its own needs. Where do you stand on provinces that refuse, not only to tailor the tax, but also to institute one in the first place? In Ontario’s case, for instance, the upcoming election could result in a Conservative government, which would clearly abolish the carbon tax. It’s not possible to tailor something that isn’t even imposed.
[English]
Mr. Beugin: The provincial government in Ontario and other provinces will have had their chance to propose viable equivalent alternatives to the federal backstop. If they choose not to do so, that is still a choice.
[Translation]
Senator Dagenais: I think I’ve used up all my time. I’ll stop there. Thank you, Mr. Beugin.
[English]
The Chair: I have one question. You mentioned that B.C. greenhouses could have done well without the British Columbia exemption that they now enjoy. Could you explore that further for me?
Mr. Beugin: It’s not my analysis. It’s a paper published three years ago by Brandon Schaufele and Nic Rivers, and I’m happy to forward the paper on to the clerk.
The Chair: Could you do it promptly? You’re our last witness.
Mr. Beugin: I could do it very promptly.
Essentially that study compared outcomes in B.C. where there had been a carbon tax to outcomes in other provinces where there had not, so that is a controlled experiment that economists like in assessing and trying to isolate the impacts of a specific policy. Because B.C. was the only one that was different, it was able to parse out those differences.
That said, the outcome was somewhat unexciting from an academic perspective. It didn’t find that the B.C. carbon tax had affected trade of agricultural products. It didn’t find that it had affected economic growth of those sectors in really strong ways.
The Chair: Interesting. Thank you for your patience tonight, and thank you for being on our panel and giving us your presentation.
Mr. Beugin: Thank you.
(The committee adjourned.)