Greenhouse Gas Pollution Pricing Act
Bill to Amend--Third Reading--Debate Continued
December 5, 2023
Honourable senators, I rise at this late hour to speak to Bill C-234 at third reading.
Over the past few weeks, Bill C-234 has taken on a new level of importance in our debates. It has given rise to unusual votes, such as the rejection of a committee report. It has elicited very emotional reactions and even intimidation here and elsewhere. It has divided some Senate groups. It has been the subject of influence campaigns by various groups that are either in favour of or opposed to its passage.
This bill has also become a political symbol. Bill C-234 ultimately brought into focus the political and partisan posturing on the issue of the carbon tax, the fight against climate change, inter-regional tensions, election strategies and even inflation. It is also symbolic because Bill C-234 affects our farmers, who, as we know, work very hard and put in long hours while facing a lot of uncertainty.
Like many others in this chamber, when I was young, I baled hay and milked cows many times during my summers in Beauce, so I know how hard that type of work can be.
I was initially reluctant to speak in this debate because Bill C-234 would not apply to Quebec’s 30,000 farms since Quebec has its own carbon pricing system. However, as I researched the issue, I realized that Bill C-234 would further increase the inequity that already exists between grain farmers in Quebec and those in the rest of Canada.
Let me explain. Under the Quebec system, there is no carbon tax exemption for gasoline and diesel used on farms. However, in the eight provinces subject to the federal government carbon tax, these agricultural fuels are exempt from private enterprise tax. Quebec farmers, therefore, pay a carbon tax on those fuels while their counterparts in eight provinces do not.
In the case of natural gas and propane, which are used to dry grain, grain producers in Quebec in the province and under the federal system all pay a carbon price. In the Quebec system, which is very complex and far from perfect, this carbon tax is included in the purchase price of propane and can vary from one supplier to another depending on the credits they purchase. For the rest of Canada, with the exception of British Columbia, the carbon tax is uniform and the same for everyone.
According to the latest auction in Quebec, the price of CO2 was about $53 per tonne in Quebec, while it is currently $65 per tonne in Canada. The difference — and it is a significant one — is that Canadian producers are entitled to the refundable tax credit that has been discussed extensively in our debates. In Quebec, this tax credit does not exist. Quebec farmers receive zero compensation for the carbon tax they pay on propane and natural gas.
The current situation, therefore, is that Quebec farmers are at a double disadvantage compared to the rest of Canada. First, they pay a carbon price on gasoline and diesel used on their farm, while producers in the rest of Canada are exempt. Second, they are not eligible for a tax credit for the carbon tax of natural gas and propane used to heat buildings and dry grain, while producers in the rest of Canada benefit from that tax credit.
Relative to their counterparts in the rest of Canada, Quebec producers are subject to more carbon pricing. If Bill C-234 is passed, this imbalance will widen even farther.
Charles Séguin, an economics professor who specializes in carbon pricing, argues that this raises an issue of fairness and that it’s not ideal for one part of the country to be at an economic disadvantage not because it is less productive, but because of a carbon exemption in another part. Mr. Séguin believes that targeted efficiency programs for farmers are much more effective in fighting climate change than carbon tax exemptions, which are, in fact, counterproductive.
Another well-known Quebec economist agrees. Professor Pierre-Olivier Pineau says it’s true that Quebec farmers are in an unfair situation. But he says that the solution is to help them modernize their operations, not abolish the carbon tax.
More generally, Professor Pineau notes that Canadians have one of the worst energy productivities in the world — all industries combined — because our system fails to sufficiently incentivize efficiency and innovation. Bill C-234 would certainly not be a step in this direction.
Quebec grain producers are aware of this inequity, but they also point out that there is a problem with the United States, where no carbon pricing is in effect.
This absence of a tax has two consequences.
The first is that it theoretically allows American farmers to sell their products at a cheaper price, or to make more profit.
The second consequence is less obvious, but relevant to Bill C-234. It is important to note that the propane- and natural gas-powered grain-drying equipment used by Quebec farmers is manufactured and sold by companies in the American Midwest.
However, since those companies and most of their U.S. customers are not subject to a carbon tax, they have no economic incentive to modify their equipment to eliminate fossil fuels. Furthermore, since the Quebec market is too small for us to develop our own drying equipment, Quebec farmers are paying a price on carbon, even though they don’t have the ability to independently change their processes.
In practice, therefore, Quebec farmers pay a carbon price for drying their grain, which is supposed to encourage them to decarbonize their processes, but in reality, the change has to come from the Americans, and they are not affected by carbon pricing.
This is why I supported Senator Dalphond’s amendment. If Bill C-234 is to be passed, let’s at least make sure it only targets processes that our farmers can’t change in the short or medium terms, those that relate to grain drying.
To overcome these challenges, Bill C-234 proposes a simple solution: remove the carbon tax from all agricultural fuels.
Sadly, that would be a “race to the bottom.”
If we take our responsibilities to future generations and the long-term public good seriously, a race to the bottom can’t be a solution.
In light of the competition from American producers who don’t pay a carbon tax, Canada could impose border carbon adjustments. These tariffs would level the playing field between Canadian producers and their American counterparts who do not pay for their carbon emissions.
Regarding these adjustments, the Department of Finance itself wrote, and I quote, that it “is looking to engage with Canadians and with international partners to advance a global dialogue on this important issue.”
This is certainly an opportunity to advance the dialogue.
As for Canada’s greenhouse gas emissions, the costs incurred by our farmers through the carbon tax can be mitigated without sacrificing the economic incentive at the core of our system. For one thing, we can use an offsetting tax credit centred on an average, which would reward people who emit proportionately less GHGs than average and penalize those who emit proportionately more.
That is exactly the type of system introduced by the federal government in the eight provinces where its tax applies: a price on carbon, offset by a tax credit.
Bill C-234 would eliminate the carbon tax and its associated tax credit, taking us back to square one, in other words, with no incentive to reduce our GHG emissions. I cannot accept a setback like that.
Bill C-234 would also have another impact. By exempting one sector from the carbon tax system, Bill C-234 would poke a new hole in what should be a fundamental principle in the fight against climate change: We are all in this together.
We are all responsible — individuals, businesses, governments, workers, consumers, young and old — to reduce our emissions and to work toward the necessary energy transition. No one should get a free pass, no matter how much we like them or their votes. That is why I was so disappointed by the federal government’s decision to give a three-year carbon tax holiday for heating oil, which seems to favour the Atlantic provinces. This sends a terrible, terrible signal.
Of course, no system is perfect. But as soon as we create exceptions and exemptions, we send the signal that we are not really all in this together. Other industries, regions or economic sectors will ask for exemptions in the name of equity or competitiveness. And they will surely get them. This is not a “floodgates” argument; it is political realism, unfortunately based on experience.
Finally, Bill C-234 would exacerbate the two-tier system that currently prevails in Canada. There are better ways to compensate our farmers for a lack of alternatives and to help them innovate and face international competition. Seriously fighting climate change for the sake of future generations means sending a strong signal that all sectors of society must be on board. To open a breach in this collective measure is to accept the weakening of a system that we should, on the contrary, seek to defend, extend and strengthen for the future of our children.
Thank you.
Would the honourable senator take a question? I think I heard you correctly that you’re opposed to the announcement the government made for the carve-out. Personally, I think it was the right decision, given the limited options in Atlantic Canada. In my home province of Prince Edward Island, for example, we only have oil and propane that are imported to the province. As a result, we have many citizens who are very committed to climate change but need a bridge to get there. It’s going to take longer than anticipated, and many people were having to make decisions between the high cost of oil or propane to heat their properties last year and other commodities, like food.
Why do you think the carve-out — and you heard others speak about it, including the person now sitting in the Speaker’s chair — that is not unique to Atlantic Canada, but even if it were, why would you not want to mitigate the harm that is caused to our citizens?
That is an excellent question, and one I have given much thought. It is true that the situation is difficult, but you know as well as I do that the signal sent by that decision was disastrous for the rest of Canada.
Could we have left carbon pricing as is and given more funding to alternative methods? I am thinking of the famous bridge that was mentioned. We perhaps could have made other choices.
I spoke with economists who told me that instead of dangling two carrots, we could have left carbon pricing as is and tell people that they had other ways of heating. I know it’s not the best answer to give someone who is struggling to pay their heating bills, but there’s a feeling of urgency and if we start to introduce loopholes in carbon pricing, it will spiral out of control.
That is the system we chose here in Canada to fight against climate change, the crisis that is unfolding before our very eyes. What will we do when our planet becomes unlivable? Everything is interconnected, even if some may disagree and argue that this is such a minor exception. I believe that we need to find other solutions.
The offset tax credit was one of them, and maybe we could have found another one for the Maritimes.
Senator Miville-Dechêne, your time has expired. Are you asking for five more minutes?
Are there any more questions?
Senator Downe has another question, as does Senator Lankin.
Senator Downe, we need to ask leave for more time. Is leave granted?
Leave is not granted, so we move on to debate.
Honourable senators, I rise today to share my thoughts about Bill C-234.
I have given a lot of thought to the role of the Senate with respect to bills that come to us from the outside, to determine what lens we should use. I have always thought that it was important to respect what the other place passed and respect the problematic situation of the provinces in relation to that of the federal government.
In the context of one specific bill, we had a choice between promoting and respecting the concerns of the provinces, and defending the interests of the federal government. The Senate was actually created to defend the interests of the provinces against a federal government that could have been, or could be, centralizing.
In the context of Bill C-234, given all the political concerns that have been raised, I thought that the Senate should pass this bill.
As far as passing a bill from the other place is concerned, should we pass it just because it comes from the House of Commons and responds to provincial concerns, without really questioning the merits of all its clauses?
My answer to that question is no, because in fact, when we receive a government bill, generally speaking, it has been studied diligently by the Department of Justice or by the departments concerned, which is not always the case with a public bill.
In the case of Bill C-234, the proposed amendments are justified and may allow for debate in the other place once the amended bill has been sent back. That is why I think it is important to pass the bill once it’s amended.
However, my assessment of this bill changed when I read the November 28 press release from Quebec’s grain growers association, the Producteurs de grains du Québec. In that press release, the association voiced its concerns to the Quebec government, saying that economic considerations in Quebec’s agricultural sector would change if there were an additional exemption for propane and natural gas. It stated that Quebec farmers are currently being penalized due to the fact that gasoline and diesel are exempt in the rest of Canada.
The more we provide exemptions to the agricultural sector elsewhere, the more pressure we put on Quebec to weaken its GHG emissions pricing system. This got me thinking and I came to the conclusion that, in a Canadian context where the provinces and the federal government have a shared constitutional responsibility, dialogue is essential in the establishment of an effective — and, most of all, equitable — strategic framework for the fight against climate change and GHG emissions reductions. This led me to move the motion that you will find in your inbox and that we will have the opportunity to discuss.
When I compared Canada’s current situation to that of other OECD countries, I was surprised to find that Canada ranks fifth out of 71 countries where a percentage of GHG emissions are covered by a carbon pricing scheme. Canada covers roughly 84% of its GHG emissions through carbon pricing. It ranks fifth, behind Iceland, Korea, Luxembourg and Germany.
By contrast, the other OECD countries that also have a pricing scheme cover, on average, about 40% of their GHG emissions through carbon pricing. When you compare 84% to the 40% average in the other OECD countries, Canada’s strategy certainly seems quite broad.
However, that raises a number of questions. In Canada, the high percentage of GHG pricing largely comes from the carbon tax. Quebec uses a different system, known as cap and trade. Europe’s emissions trading system is very different and is widely used to set a price on carbon. The carbon tax is much simpler and allows the government to withdraw the proceeds of the tax and redistribute them as benefits.
In Quebec, we have a system that involves the sale of emissions permits. This system has been used since 2013, and every year, the Government of Quebec issues permits free of charge, but it also sells them.
Some allowances are free, and some are sold at auction. These auctions take place four times a year. The government has to sell the emission rights, and each year, the number or percentage of emission rights decreases. This means there will be fewer and fewer, and prices will go up.
By selling emission rights, the Quebec government has raised around $8 billion to date. This money is deposited in an electrification fund and will be used to subsidize solutions that promote net zero.
We therefore have two completely different systems.
We have a market, for example the agricultural sector, where prices are set internationally. This means that the impact of the system on competition is significant and is a major consideration for the future, especially since the carbon price will increase and the economic impact on our agricultural sector will increase too. The effect on Quebec will be completely different than the effect on the rest of Canada, hence the importance of having a dialogue between the provinces and the federal government to come up with a fair and effective carbon pricing strategy.
I’d also like to add, after reading up on the OECD, that although carbon pricing is widely used, it’s not the only measure. Even though carbon pricing is a necessary strategy, it in itself isn’t enough to reduce GHG emissions. It isn’t enough because it’s a price-based incentive, but the models do point to the efficacy of carbon pricing. However, it’s only effective when everything else is equal, and in life, things aren’t always equal, so price-based incentives can sometimes have the opposite effect to what we were hoping for.
I’d add that the economic situation we’ve had over the past few years — inflation, in particular — has caused many OECD countries to reduce their carbon taxes, because prices were on the rise, groceries were more expensive and people were complaining.
My point is that carbon pricing is a solid measure. Will it be a useful system going forward? Probably, but it’s a strategy that will need to be combined with other mechanisms, such as standards and, most of all, investment subsidies. We can’t expect that a pricing mechanism will magically transition our entire economy as quickly as we’d like.
In closing, Bill C-234 shows that people are dissatisfied with this system because it differs from province to province, or is different from the one in Quebec at least. The fact that the agricultural sector also differs from province to province creates issues that we will need to address, one way or another.
I agree that we should vote in favour of this bill, as amended, in hopes that it will start a conversation in the other place so that some compromises can be reached. Thank you.
