Agriculture Committee on Oct. 1st, 2024

[The Chair, Liberal, Kody Blois]

I call the meeting to order.

Welcome to meeting number 110 of the Standing Committee on Agriculture and Agri-Food.

I'll start with a couple of reminders. Today’s meeting is taking place in a hybrid format. The proceedings will be made available via the House of Commons website. Just so you are aware, the webcast will always show the person speaking, rather than the entirety of the committee. Screenshots or taking photos of your screen is not permitted.

This is the first meeting on our new study regarding carbon pricing and reciprocity of standards. Mr. Drouin proposed the topic for this study.

Mr. Perron, I see that you want to speak. Please be very brief, since we have witnesses before us.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

I just want to mention something for the record.

I made a comment to the analysts about the title of the briefing document we received. Incidentally, the analysts are doing an extraordinary job, but I felt that the title had been pruned a little too much and that we were losing the meaning of what I had added, that is, that we were really going to study the requirements for products coming from abroad. I have already discussed this with them in a very cordial manner, they have welcomed my comments and they will make corrections. I simply wanted to mention that we had been vigilant in this regard.

[The Chair, Liberal, Kody Blois]

Okay. We may have an opportunity this afternoon, after our meeting, to discuss how the text of the motion will be published.

I'm going to start with our witnesses today. We have four witnesses from four different government departments.

I'm going to start with someone you all know. From the Department of Agriculture and Agri-Food, we have Tom Rosser, assistant deputy minister.

Welcome back, Mr. Rosser, to the committee.

From the Department of Finance, we have Michèle Govier, director general of the international trade policy division.

From the Canadian Food Inspection Agency, we have Kathleen Donohue, vice-president, international affairs; and Evelyn Soo, executive director, food safety and consumer protection directorate.

Last but not least, from the Department of the Environment, we have Judy Meltzer, associate assistant deputy minister, environmental protection branch. I understand you have no opening remarks, but you'll be available for questions accordingly.

I'm going to start with Mr. Rosser. You have up to five minutes for opening remarks.

[Tom Rosser, Assistant Deputy Minister, Market and Industry Services Branch, Department of Agriculture and Agri-Food]

Thanks so much, Mr. Chair, and good afternoon.

Agriculture and Agri-Food Canada has a mandate to ensure the long-term economic competitiveness, sustainability and resilience of the Canadian agriculture and agri-food sectors. Canada is among the world's top exporters of agricultural and agri-food products. Because of this strength and a predictable rules-based trading system, the Canadian agriculture and agri-food sector plays a vital strategic role as a global contributor to food security.

Trade facilitates the transfer of goods, services and technologies that enable the agricultural productivity and growth that are vital to achieving greater sustainability and food security worldwide. The role of trade in achieving not only food security and sustainability goals is growing in importance, and countries are increasingly engaging internationally to discuss these issues.

As a strong proponent of the multilateral rules-based system, Canada is an active participant in international discussions on trade and sustainability. For example, at the World Trade Organization, Canada is a co-convenor and an active participant in something known as the TESSD, or trade and environmental sustainability structured discussions, which is a forum where members and external stakeholders can come together to discuss policy approaches and ideas to enable environmentally sustainable trade in a transparent and inclusive manner.

Similarly, as a member of the OECD, Canada is supportive of its research into the relationship between trade and sustainability in the agricultural sector. International discussions on trade and sustainability reflect the broad diversity of tools that countries are considering in their approaches to sustainability. This includes research and innovation, regulatory measures, subsidies and other forms of support, as well as technical capacity building.

Given its critical role in achieving global food security, Canada's view is that measures should be designed in the least restrictive manner possible to achieve their objectives. Canadian farmers are rightfully proud of their legacy of environmental stewardship. It has been built on a commitment to continuous improvement.

Through our sustainable agricultural strategy, our government hopes to be a partner in working towards achieving Canada's broader 2030 and 2050 environment and climate goals. This strategy will help set a shared direction for collective action to improve environmental performance in the sector over the long term in order to advance the sustainability, competitiveness and resilience of the sector.

Agriculture accounts for about 10% of Canada's greenhouse gas emissions, whereas globally it's about 30%. Over the past 30 years, Canada has doubled its agricultural production, while its greenhouse gas emissions have remained more or less stable. So there has been a significant drop in emissions intensity.

In developing our strategy, having reliable data is a cornerstone of environmental policy, as it will allow us to measure progress.

With respect to border adjustments for carbon, we are aware that a number of countries are exploring this possibility in certain sectors, such as aluminum, steel and fertilizers. To our knowledge, no country has proposed a similar measure in the agricultural sector.

Canada has a long history of working with our allies to promote better international market access and minimize non-tariff barriers to international trade.

As the committee will no doubt hear in the course of its work, agricultural stakeholders in Canada have a strong interest in issues at the interface between the environment and international trade, and they often participate in discussions on these issues, not only in Canada, but also internationally.

I thank committee members for their interest in this topic.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Rosser.

I now yield the floor to Ms. Govier for five minutes.

[Michèle Govier, Director General, International Trade Policy Division, Department of Finance]

Thank you.

Good afternoon. My name is Michèle Govier. I am the director general of the international trade policy division at Finance Canada. My team leads on federal import policy, including tariff and trade remedy policy, as well as the government's ongoing consideration of border carbon adjustments, or BCAs. I understand the committee had an interest in the BCA consultations we undertook in 2021-22, and I'm glad to be here today to talk about our ongoing work in this area.

BCAs are intended to account for differing carbon costs that companies face across jurisdictions when goods they produce are traded internationally. They typically involve border charges that seek to replicate domestic carbon pricing for imported goods, though rebates of carbon costs for exported goods could also be contemplated. The main objective of BCAs is to reduce the risk of carbon leakage—that is, the movement of investment or production to jurisdictions with a lower carbon cost—thus supporting greater climate ambition and maintaining a level playing field for industries subject to carbon pricing.

Given their administrative complexity and relatively high compliance burden, BCAs are typically contemplated for the most emissions-intensive and trade-exposed sectors, such as steel, aluminum, cement and fertilizer, among others. The EU will be the first jurisdiction to impose a BCA with its carbon border adjustment mechanism, or CBAM, currently in a transitional, reporting-only period. Border charges are currently scheduled to enter into force in 2026 for a narrow set of sectors: cement, electricity, fertilizers, iron and steel, aluminum and hydrogen. The U.K. is also on track to impose a CBAM in 2027.

In terms of our own work on BCAs, in 2020 the Government of Canada announced it would explore BCAs to address carbon leakage risks and competitiveness pressures associated with domestic carbon pricing. In August 2021, the government launched consultations seeking views from a full range of industry associations representing companies in emissions-intensive and trade-exposed sectors, as well as labour unions, academics, non-government organizations, think tanks and the provinces and territories.

To support these consultations, the government released a paper called “Exploring Border Carbon Adjustments for Canada”, which explored the policy considerations related to BCAs from an economic, environmental and international trade relations perspective.

The key messages we heard from Canadian stakeholders through our consultations were not only an interest in a BCA from certain sectors where decarbonization presents greater challenges and where the risks of carbon leakage with a rising carbon price are more prominent, but also a strong preference to retain existing carbon leakage mitigation measures, for example, free allowances provided through the output-based pricing systems alongside a potential BCA.

Concerns were generally about the possibility of retaliatory measures, administrative costs and price impacts, and about the importance of coordination with the United States as our largest trading partner.

Several agricultural stakeholders participated in the consultations and expressed the following key comments. There was mixed and cautious support for the application of BCAs to agricultural goods, including due to concerns that it could lead to greater trade protectionism in the sector. There was recognition that carbon sources and costs in the agriculture sector are more complex and would not lend themselves well to carbon accounting associated with a BCA. There was a recommendation that the best way to ensure the competitiveness of Canadian farming is through the upfront relief of carbon pricing, and there was concern about the impact of BCAs on the cost of farm inputs such as pesticides and fertilizers.

In exploring BCAs, we have identified considerations that are inherent to any jurisdiction that is contemplating that measure, which include the benefits of a BCA in ensuring a fair and predictable environment for businesses as they pursue industrial decarbonization, how to design BCAs that would comply with international trade obligations, and the evaluation of the cost impacts and the compliance burden of BCAs, including costs passed through for downstream industries.

I would note that there are other considerations that are of particular relevance for Canada, one being the different provincial and territorial carbon pricing systems across Canada, which make it difficult to design a BCA that accurately adjusts for carbon costs across the country, and also the significance of the U.S. as a trade partner, given its lack of federal carbon pricing.

The government continues to contemplate this policy tool, in light of these different considerations, taking into account the domestic context, including Canada's broader agenda for transitioning to net zero as well as international developments. Since our consultations, we have not had further representations from the agriculture sector expressing an interest in BCAs.

I'll be pleased to take questions. Thank you.

[The Chair, Liberal, Kody Blois]

Thank you very much, Ms. Govier.

Just for my benefit, BCA.... I missed the acronym. Was it border carbon adjustment?

[Michèle Govier]

It is border carbon adjustment, yes.

[The Chair, Liberal, Kody Blois]

Okay, thank you.

I will now turn to CFIA and Ms. Donohue.

You have up to five minutes. It's over to you.

[Kathleen Donohue, Vice-President, International Affairs, Canadian Food Inspection Agency]

Thank you, Mr. Chair.

Good afternoon.

Thank you to the members of the committee for the opportunity to speak to you today on a rather important topic.

My name is Kathleen Donohue. I am the vice-president of the international affairs branch at the Canadian Food Inspection Agency, or CFIA.

My remarks today will focus on the treatment of imported foods versus those produced in Canada.

The Canadian Food Inspection Agency is a science-based regulatory agency whose mandate is the safeguarding of plants, animals and food, which enhances the health and well-being of Canadian peoples, the environment and our economy. All food sold in Canada, whether domestically prepared or imported, must meet the food safety and nutritional quality standards and labelling requirements of the safe food for Canadians regulations and the food and drugs regulations.

With regard to the CFIA role, the agency conducts risk-based activities to ensure the safety and compliance of food, both domestic and imported. During inspection, the Canadian Food Inspection Agency verifies that food complies with Canada's food safety requirements. Regardless of the origin of the food product, the CFIA takes action when a product does not meet Canadian regulations, and, in the case of an imported product, works with foreign governments to address any food safety risk as required.

The CFIA verifies that safe food for Canadians licence-holders meet federal food requirements. This includes sampling and testing products, commodity inspections and the verification of preventative control plans. The CFIA can issue border lookouts and undertake point-of-entry inspections to prevent non-compliant food from entering Canada, including through orders for its removal from Canada, the destruction of the product or the suspension or cancellation of a licence. Other non-compliance actions may include corrective action requests, seizures and detention, and even prosecution.

The CFIA may enter into arrangements with international trading partners that outline specific conditions for imports, including conditions that require the foreign government to issue certificates for specific commodities.

The CFIA conducts foreign audits of food inspection systems as well as risk-based audits of foreign establishments to ensure that products exported by these countries and establishments meet Canadian import requirements.

For high-risk food products such as meat and shellfish, a foreign country's inspection system must be pre-approved by the CFIA before products from that country can be exported to Canada. These assessments are intended to ensure that products exported to Canada comply with Canadian laws and regulations.

In summary, the CFIA requires imported food products to meet the same level of protection as those produced in Canada. It has several mechanisms to ensure that imported products meet Canada's food safety requirements. In addition, the CFIA may take appropriate action when those products do not meet these requirements.

Thank you.

I would be pleased to answer any questions you may have.

[The Chair, Liberal, Kody Blois]

Thank you very much, Ms. Donohue.

Now is the time for questions.

We'll start with the Conservatives.

Mr. Barlow, you have the floor for six minutes.

[John Barlow, Conservative, Foothills, AB]

Thank you, Mr. Chair.

Thank you to the department for being here.

It is interesting that this study was put forward by the government, but the officials weren't ready to talk about this last week. I'm a bit concerned that this is potentially a policy the government wants to look at implementing but wasn't ready to even discuss at committee.

Mr. Rosser, I'll go to your comments first.

You talked about global emissions from agriculture being 30% globally. Canada makes up 1.6% of global emissions, and agriculture makes up about 10% of that. That's what you said. That's your number of our own emissions. We are certainly much lower than the global average when it comes to agriculture.

When it comes to our competitiveness in the agriculture sector, in so much of what we do, we rely on international trade and trade access to other jurisdictions. In your opinion, what would implementing a carbon border adjustment on agricultural products do to Canada's competitiveness, when we're already far exceeding other global jurisdictions when it comes to emissions and our environmental accomplishments?

[Tom Rosser]

The member is quite right that, roughly speaking, agriculture emissions are about 10% of the total in Canada. There isn't really a definitive source that allows you to do a comparative across the world, commodity by commodity, of emissions intensity. However, the available evidence suggests that Canada is a very strong performer when it comes to greenhouse gas and sustainability characteristics in the ag sector.

As I referenced in my opening statement, agricultural stakeholders, particularly those that are the most exposed to trade, are very interested in discussions around international measures on trade. I think this is because their overriding concern, which is also ours, is that whatever measures get put in place, they do not create possibilities by trading partners for new, non-tariff barriers or barriers to trade.

That would be my characterization, anyway, of the view of the agricultural sector.

[John Barlow, Conservative, Foothills, AB]

Thanks, Mr. Rosser.

I find it interesting that both you and Ms. Govier from the Department of Finance use the word “interests” to describe the very real concerns that the stakeholders you've consulted with are raising. I would say they are not “interested”. They are very worried about the potential impacts of this, when no other country, in your own words, is looking at implementing this on agricultural products. I really wonder why this is a path we would want to go down, if no other country is following that tack.

I'll go to Ms. Govier.

We now know that the cost of administering the carbon tax alone is about $82 million annually. It takes almost 500 bureaucrats to take on that task. I would say it's not the greatest return on your investment.

Has the Department of Finance done any similar analysis on what the cost of administering a carbon border adjustment would be for the Department of Finance, the CBSA or any of the other departments that would be tasked with administering this program?

[Michèle Govier]

We haven't done a detailed study to see what those would be. Our understanding and our belief is that it would be fairly heavy. It's not like applying a regular tariff, whereby you simply say it's going to be 10%, or whatever the number is, and you apply it. There has to be an assessment of the embedded emissions in imported goods, as well as preparatory work on what the emissions are in your own country, to have that comparability.

We are aware that the EU's process was a three-year-long process involving the staffing of a group. The U.S. International Trade Commission is just doing a study to do some of this preliminary work on what emissions are embedded in goods. That is a fairly heavy process too.

I won't say it wouldn't be a somewhat heavy process, but it would depend, as well, on how you design the system.

[John Barlow, Conservative, Foothills, AB]

I hope, then, that if you continue to go down this road or if the government asks you to follow this, that analysis will happen on the cost of the program and the benefits, if any, of this program for our Canadian agriculture sector specifically, as that's our domain.

Perhaps this is for Mr. Rosser, or whoever would be the person to answer this. You talked about the EU implementing this in 2026 in very specific industries, but not in agriculture. Have you consulted with the United States, which is our number one trade partner and often our number one competitor when it comes to agricultural products?

If you have done that consultation or had that discussion, what is the response to Canada's pre-emptively implementing a carbon border adjustment on agriculture?

[Tom Rosser]

I'll probably defer to my colleague, Kathleen. She and I both have regular discussions with our U.S. counterparts on a variety of issues related to trade and the environment.

I'm not aware of our having specifically discussed carbon border adjustments in the ag sector with them, simply because neither they nor we are in an advanced stage of considering such a measure.

Kathleen has probably had at least as many discussions with the U.S. as I have.

[Kathleen Donohue]

I am here as the vice-president of the international affairs branch at the Canadian Food Inspection Agency, but I do wear two hats. I report to both the deputy minister of Agriculture and Agri-Food Canada and the president of the Canadian Food Inspection Agency.

From an Agriculture Canada perspective, I would concur with Tom. We have not had any discussions with the U.S. on any type of CBAM program at this juncture.

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you.

Just to clarify, on the way Mr. Barlow framed his question, it was the idea that the government was contemplating this. This committee is studying what's happening around the world. As the chair, just to clarify for the members, I didn't hear in any of the testimony that the government was contemplating one in Canada. We're talking about other jurisdictions.

Is that correct, Ms. Govier?

[Michèle Govier]

We are contemplating it happening, since 2020—a BCA—but not extending it at this stage to the agriculture sector. We were really just focusing on those high-emissions and trade-exposed sectors that I mentioned earlier in my remarks.

[The Chair, Liberal, Kody Blois]

Thank you very much.

Mr. Drouin, you have six minutes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair.

Thank you to the witnesses who are before us.

When we talk about the U.S., I know that Senator Cassidy, a Republican, and Senator Whitehouse, who's a Democrat, both have introduced a bill that would essentially impose a tariff on jurisdictions that don't have a price on pollution or measure carbon intensity on pollution. On the idea that the U.S. is not necessarily talking about it, definitely the folks who have the power to introduce a law are talking about it.

My goal here is not to predetermine what may happen tomorrow morning, but what may happen in five, 10 or 15 years. You've all testified that the EU and the U.K., by 2026-27, will impose a carbon adjustment tariff on fertilizer, which is an input that we all use—that farmers use in terms of growing food—but carbon also is an input in the steel industry, the aluminum industry and the cement industry. The world is looking at this. Carbon leakage is a major issue.

Here, we're talking about reciprocity clauses; in Europe, they're talking about mirror clauses. Farmers are putting a lot of pressure on the European Commission regarding mirror clauses. In fact, what is this about? We want the agricultural standards that apply in Europe to apply in the same way to importing countries, such as Canada. Canada exports agricultural products to Europe.

My first question is for the representative from the Department of Finance.

I know there have been consultations on carbon border adjustment mechanisms. Of course, in agriculture, they say that this is not the time to implement such mechanisms, because we don't yet know how to measure carbon emissions effectively. I know that's what was said in Europe. Are the international conversations going to be somewhat along the same lines, that is to say that, although the agricultural sector may want to get to that point some day, we have not yet found an effective way to do so?

[Tom Rosser]

I will answer the question first, if I may, and Ms. Govier may want to add something afterwards.

From an agricultural point of view, it is absolutely true that there are discussions at the international level. I am thinking in particular of the World Trade Organization, the Organisation for Economic Co-operation and Development and the UN meetings on agricultural issues at the interface between the environment and international trade. The border adjustments for carbon are one aspect of those discussions, but I think they deal with the subject more broadly.

It is true that the federal government is not about to propose agricultural policies. However, there are broader discussions going on internationally. As a government, we are committed to that. We often meet with representatives of Canadian agricultural associations who attend meetings of the World Trade Organization or meetings of the United Nations Conference on Climate Change.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

We often hear that Canada is responsible for less than 2% of greenhouse gas emissions, so we wonder why, in this case, it would take action.

I'd like to know a little bit about what the international discussions are like. I have seen the figures, and it is true that Canada is responsible for less than 2% of greenhouse gas emissions. On the other hand, it is also true that, taken together, all countries that are responsible for less than 2% of greenhouse gas emissions are ultimately responsible for at least 40% of the total emissions in the world. That is why there needs to be a global effort.

What is the attitude of the countries responsible for less than 2% of greenhouse gas emissions, whether at the United Nations Conference on Climate Change or in other international organizations? Are they using that argument to say that they're not going to do anything, that they're going to sit back and wait for the U.S. and China to act? Is that the attitude of the international community at the United Nations Conference on Climate Change or in other international forums?

[Tom Rosser]

I can only speak about meetings I've been to recently, such as the agriculture ministers' meetings. When we go around the table, we always see that the impact of climate change on agriculture and the agri-food system is a priority issue for almost everyone. There is no distinction between small islands in the Caribbean and large agricultural producers and exporters. In other words, there is generally no distinction between small and large emitters. Everyone is interested in the impact of climate change on agri-food production.