Agriculture Committee on June 16th, 2022

[The Chair, Liberal, Kody Blois]

Colleagues, that ends the first panel.

I'd like to thank Mr. Lobb for being here today and for bringing forward his private legislation for us to consider.

I don't know if Mr. Barlow recognized it when he started the meeting, but I believe there are a number of farmers in the room as well.

On behalf of all our committee members, we thank you. I think particularly with what we've been studying around global food security right now, your profession cannot be understated in terms of your importance.

Thank you so much, colleagues.

We are going to take just a couple of minutes, and we're going to be transitioning to officials in the second hour. Please don't go far. Thank you so much.

[The Chair, Liberal, Kody Blois]

We'll get started on the second hour of our testimony. I know everyone's excited that we're all back in person and chatting.

Today we have officials from three different departments joining us.

From the Department of Agriculture and Agri-Food, we have Natasha Kim, the assistant deputy minister of the strategic policy branch, and Marco Valicenti, director general of the innovation programs directorate.

From the Department of the Environment, we have John Moffet, the assistant deputy minister, environmental protection branch. I believe he's coming. I don't know, but we'll work with the clerk on that. Also, we have Judy Meltzer, the director general of carbon market bureau, environmental protection branch.

From the Department of Finance, we have Miodrag Jovanovic, assistant deputy minister, tax policy branch; Gervais Coulombe, senior director, excise taxation and legislation, sales tax division, tax policy branch; and Jenna Robbins, senior director of strategic planning and policy, business income tax division, tax policy branch.

There are lot of different titles there and my apologies to some of our lovely civil servants if I haven't quite gotten your last names correct. We're happy to have you here on an obviously important topic.

We are going to have five minutes for opening statements. My understanding is that we'll hear from Finance and from Agriculture. Environment is here to answer questions, but is not going to be providing opening remarks.

I'm going to start with Mr. Jovanovic from Finance.

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

[Miodrag Jovanovic, Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Thank you.

Thank you for the opportunity to appear today concerning private member's Bill C-234, which seeks to remove the fuel charge on the use by farmers of natural gas and propane for heating and drying activities.

The Greenhouse Gas Pollution Pricing Act, the GGPPA, currently provides upfront relief from the fuel charge to farmers for gasoline and diesel use in eligible farming machinery, such as farm trucks and tractors. The GGPPA also provides relief of 80% of the fuel charge for natural gas and propane used to heat an eligible greenhouse.

Private member's Bill C-234 would expand fuel-charge relief to farmers by modifying the definition of eligible farming machinery to include grain dryers and property used to heat or cool a building or similar structure. It also seeks to expand relief by adding natural gas and propane to the current list of qualifying farming fuels.

Private member's Bill C-234 is being studied while, on June 9, another government bill, Bill C-8, received royal assent.

Recognizing that many farmers use natural gas and propane in their operations, Bill C-8 introduced a refundable tax credit in order to return a portion of fuel charge proceeds to farm businesses operating in backstop jurisdictions—Manitoba, Ontario, Saskatchewan and Alberta—starting with the 2021-22 fuel charge year.

If fuel charge relief for farmers were extended through Bill C-234, farmers in backstop jurisdictions would receive double the compensation by benefiting from the refundable tax credit included in Bill C-8, while also being almost fully relieved from the fuel charge. Such double compensation would come at the expense of households or other sectors in those provinces.

Through the refundable tax credit, the total amount to be returned is generally equal to the estimated fuel charge proceeds from farm use of propane and natural gas in heating and drying activities in backstop provinces. This ensures that all the proceeds collected from this farming activity are returned to farmers. It is estimated that farmers will receive $100 million in the first year, with this amount expected to increase as the price on carbon pollution rises.

The refundable tax credit is designed to allocate total fuel charge proceeds according to farm size, as measured using total farm expenditures. In this manner, the credit aims to help farmers transition to lower-carbon ways of farming by providing support to farmers, while also maintaining the price signal to reduce emissions.

This is a different approach than that proposed in private member's Bill C-234. Bill C-234 would directly relieve fuel charges on natural gas and propane used in eligible farming activities and thus would completely remove the price signal intended by the carbon pricing regime.

I would like to conclude by noting, as mentioned already, that I'm joined today by my two colleagues, Jenna Robbins and Gervais Coulombe. We would be very happy to answer your questions.

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Jovanovic.

Right now, we're going to turn to Ms. Kim from the Department of Agriculture and Agri-Food.

[Natasha Kim, Assistant Deputy Minister, Strategic Policy Branch, Department of Agriculture and Agri-Food]

Thank you very much, Mr. Chair.

Good afternoon, everyone.

Thank you for inviting us in relation to this study.

I'd like to begin by acknowledging that I am speaking to all of you today from the traditional and unceded territory of the Algonquin and Anishinabe people.

As you mentioned, I'm joined by my colleague Marco Valicenti, director general, from our department's programs branch.

As members are well aware, climate change is one of the greatest challenges of our time. We only have to look to the devastating droughts and floods in western Canada last year to know that Canadian farmers and ranchers are on the front lines of that fight against climate change. However, they're also playing a very significant role as part of the climate solution. Canadian farmers are already taking action through practices such as zero tillage, precision agriculture and crop rotation, and our natural prairie grasslands store a vast amount of carbon while providing feed for grazing livestock.

Over the past few decades, farmers have doubled the value of their production without substantially increasing greenhouse gas emissions, but while this progress is significant, the Government of Canada and agricultural producers recognize that there's more work to do.

The government needs to ensure that farmers have the tools they need to increase their production sustainably to feed a growing population in Canada and around the world.

Agriculture and Agri-Food Canada is actively engaged on many fronts to support the agricultural sector in reducing emissions, from scientific research to direct support for farmers across the country through program and policy initiatives.

Over the past year and a half, the government has committed $1.5 billion in new funding to help farmers reduce their carbon emissions through sustainable practices and technologies.

In particular, I'd like to highlight that budget 2022 proposes to triple federal investments in the agricultural clean technology—or ACT—program, while also expanding the agricultural climate solutions program's on-farm climate action fund.

AAFC recently set aside $50 million under the ACT program, with a specific focus on grain-drying technologies; $10 million was allocated to focus on powering farms with clean energy. Already, this key program has supported 110 projects announced across Canada, with a total investment of over $33 million, including for solar panels, precision agriculture and energy-efficient grain dryers.

These investments complement economy-wide initiatives such as the price on pollution. The price on pollution continues to be an important tool in a suite of measures to support Canada's climate targets and, as has been referred to earlier, it has been calibrated and limited in terms of its on-farm application.

Thank you for your time. I hope this information has been helpful. I'll now be happy to take any questions with my colleague.

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you very much, Ms. Kim.

I know that there are officials here from Environment and Climate Change Canada. I believe it's Ms. Meltzer and Mr. Moffet.

I see that you're online. If you're able to turn on your cameras, my understanding is that you're happy to take questions; there was just no opening statement from ECCC.

We will turn to questions now.

Mr. Barlow, I have you up first for six minutes.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Chair.

Thanks to the officials for being here.

I appreciate the comments by Ms. Kim and Mr. Jovanovic about the importance of the fact that farmers have the tools to increase yield and feed the world, but it's difficult for farms to invest in new technology and new innovation if they aren't economically sustainable. Burdening them with new taxes makes it difficult for them to do those things, when of course they want to do everything they possibly can to improve efficiency and protect their environment.

My first question would be for Mr. Jovanovic.

The message we get from the government is that the carbon tax is revenue neutral. Is the carbon rebate revenue in Bill C-8 neutral for farmers? Do they get everything they've put into the carbon tax returned to them through the rebate in Bill C-8?

[Miodrag Jovanovic]

Thank you for your question.

That is the objective, yes, and that's how the measure is being designed, and that is how the rates are determined as well, so—

[The Vice-Chair, Conservative, John Barlow]

Okay. You're saying that is the objective, but my question is, is it in fact? You've gone through one tax year now with Bill C-8. Can you tell me if farmers are whole as a result of what they've paid in the carbon tax and what they're getting through the rebate in Bill C-8?

[Miodrag Jovanovic]

The initial process is based on an estimate.

First, there's an estimate of the amount of fuel charge that will be paid by the sector. This estimate is $100 million for 2021-22, and I think it's about $122 million for 2022-23.

[The Vice-Chair, Conservative, John Barlow]

Okay.

[Miodrag Jovanovic]

That amount is being provided or given back to the sector through this refundable credit on the basis of their total expenses.

[The Vice-Chair, Conservative, John Barlow]

Okay. So—

[Miodrag Jovanovic]

Then a reconciliation exercise will be done, I believe, maybe two years after—

[The Vice-Chair, Conservative, John Barlow]

Great. I'm sorry. I have to ask some other questions.

We've heard even from my esteemed Liberal colleague, whom I have a great deal of respect for, that from talking to his farmers and his accountants, the best they've seen is that farmers are getting a third back. We've heard from farmers in Ontario that they're getting about 13% to 15% back.

That is a long way from being the objective of what farmers and Canadians have been told, namely, hat the carbon tax is revenue neutral. Obviously, through Bill C-8 and the rebate program, it is nowhere near revenue neutral. Farmers are having to pay to transition to another source that does not exist. You're asking farmers to transition to something that physically is not reality. So (a), they're being misled by being told the carbon tax is revenue neutral, and (b), you're asking them to transition to something that in reality does not exist.

Where does this equation come from that it would be $1.73, I think, per $1,000 of eligible expenses? You're saying the objective is to be revenue neutral, when you've come exceedingly short of that. Where does that equation come from?

[Miodrag Jovanovic]

I think it's important to clarify revenue neutral. The concept of revenue neutrality here is on an aggregate basis. Again, the approach that has been determined as preferable by the government is to look at the envelope, the total amount of fuel charge paid by the farming sector—as I said, an estimated $100 million for 2021-22—and give that money back to the sector in an equitable manner, in a way.

For each farm, it would be based on the amount of total expenses. The intent is not to pay back what each farm paid. That's different. That's not the objective of this measure.

[The Vice-Chair, Conservative, John Barlow]

Okay—

[Miodrag Jovanovic]

That would be the objective of an exemption, which is not the same thing.

[The Vice-Chair, Conservative, John Barlow]

Thanks, Mr. Jovanovic, but when the promotional language from the government is that the carbon tax is revenue neutral, that means I'm getting back exactly what I paid into it. I appreciate that you trying to spin this a bit differently, but that is not reality.

I'll cede the rest of my time to my colleague Mr. Epp.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Thank you.

I'm going to continue on that very point.

I have the largest greenhouse sector in North America in my riding. Have you done any sector-by-sector analysis of the impact of the provisions under Bill C-8? That's what I'm hearing back, that the greenhouse sector is a very, very large user of fossil fuels, whereas some large vegetable farms, where they're heavily labour-dependent, would not be.

What I'm hearing you say is that this is not an equitable return. It's going to be a blanket-wide return. Am I understanding you correctly?

[Miodrag Jovanovic]

What I'm saying is that the objective of this measure is to return all of the fuel charges collected by the sector and return them to the sector while maintaining the price signal. In order to maintain the price signal, the metric that has been used to redistribute the money is total farm expenses for each farm. We recognize that this means that what some farms will get in return is less than what they paid and that some farms may get a bit more. That is the nature of the approach that has been chosen.

Again, it's different from an exemption. The intent of this credit is not to try to replicate what an exemption would do. It's just a different principle; it's a different approach.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

What is the thought process behind picking winners and losers, either by sector or by individual farms and their structures? I'm looking for the inherent fairness. Those are the questions that I'm being asked.

[The Chair, Liberal, Kody Blois]

Mr. Epp, we are at time.

Mr. Jovanovic, if you want 20 seconds to take that, great. If not, we can move on.

[Miodrag Jovanovic]

I'm not going to take this one in a few seconds, if you don't mind.

[The Chair, Liberal, Kody Blois]

Okay.

Mr. Turnbull, it's over to you for six minutes.