Thank you, Mr. Chairman.
I would like to thank the committee for the opportunity to appear today to discuss Bill C-234, which would eliminate carbon pricing on a farmer's use of natural gas and propane for grain drying and heating.
The issue of carbon pricing in agriculture is contentious and complicated for many reasons that are already well understood by members of this committee. Food is perhaps one of society's most basic and pressing needs, and any measure that increases the costs of producing food is understandably met with a great deal of trepidation.
However, Canada has also pledged to reduce emissions to at least 40% below 2005 levels by 2030, with the goal of net-zero emissions just 20 years later. It would be prudent to achieve this goal at the lowest total cost to society. There are low-cost mitigation opportunities in the agricultural sector that could be exploited to keep the cost of this GHG reduction goal as low as possible.
However, despite the fact the agricultural sector accounts for approximately 10% of Canada's total GHG emissions, the Greenhouse Gas Pollution Pricing Act has used a mostly laissez-faire approach for the sector, leading to the exemption of well over 8.2% of Canada's total GHG emissions from carbon pricing. Bill C-234 seeks to expand that exemption to one of the few remaining areas of agricultural emissions covered by the act: grain drying and heating.
To understand the economic implications of this amendment, especially with respect to grain drying, I would like the committee to bear in mind the following points:
When the price of an input increases, there are two effects for farms operating in competitive markets. One effect is to substitute, to change to a different set of inputs that haven't been as influenced by the price change. At the current state of technology, this effect is minimal, relying on changes to harvest practices that will vary by region, weather and crop type. The other effect is to reduce output, but in this case, the size of the price increase is unlikely to elicit a strong output effect. At current crop prices, it's still profitable to dry, even at a higher cost.
It may be that producers choose to dry their grain slightly less than before to ensure that they do not pay more to dry than they would earn from having drier grain. However, producers may be unable to make this adjustment if they're selling to grain buyers with specific moisture requirements, which is common.
Therefore, with limited changes in producer behaviour, there will be limited reductions in GHG emissions from grain drying before greener alternatives become available.
However, removing the carbon pricing exemption will have an effect on the investment in grain-drying alternatives that emit fewer GHGs. The development of greener alternatives will require significant private capital, and if grain drying is unregulated, the signal to private capital will be lost. Previous testimony on this amendment suggests that sufficient alternatives are at least 10 years away. Keep in mind that this estimate is a function of the carbon price. A higher price will shorten that time frame if private capital senses a profitable opportunity.
Absent Bill C-234, the money spend on grain drying and heating by the agricultural sector is still returned to the sector, albeit at levels that are unlikely to exactly cover a single farmer's outlay. Some farmers will receive less than they paid, and some will receive more.
From an economic perspective, the question is as follows: Will the social welfare costs of redistributing income from larger, more energy-intensive farms to less energy-intensive farms through uneven rebate distribution outweigh the gains from the investment signal sent by keeping the price in place? Based on what we understand about the efficiency of carbon taxation and the government's estimate of the social cost of carbon, my opinion is that, no, the cost of exempting grain drying and heating from carbon taxation will not outweigh the long-term benefit.
Thank you.