Agriculture Committee on Oct. 24th, 2022

[The Vice-Chair, Conservative, John Barlow]

I call this meeting to order. Welcome to meeting number 33 of the House of Commons Standing Committee on Agriculture and Agri-Food.

I will start with a few reminders for witnesses who may not have joined us in the past.

Today's meeting is taking place in a hybrid format. The proceedings will be made available via the House of Commons website, and the webcast will always show the person speaking rather than the entirety of the committee.

Especially for our witnesses, screenshots or photos taken of your screen are not permitted. For members and witnesses participating in person, please keep in mind the Board of Internal Economy's guidelines for mask use and health protocols. We don't need to worry about that.

I would like to make a few comments for the benefit of our witnesses here today. Members and witnesses, you may speak in the language of your choice. Interpretation services are available and, if interpretation is lost, I will stop the clock to ensure that we can get interpretation back up and running as quickly as possible.

Before speaking, please wait until I recognize you by name. If you are on video conference, please click your microphone on to unmute yourself. For those in the room, your microphone will come on automatically, so you don't need to worry about that.

Again, for our witnesses, please speak slowly and clearly. When you are not speaking, your mike should be on mute for the benefit of our translators.

All comments by members and witnesses should be addressed through the Chair.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, May 30, 2022, we are resuming our study on a private member's bill, Bill C-234.

[Andréanne Larouche, Bloc, Shefford, QC]

A point of order, Mr. Chair.

Did all the witnesses pass the sound test to ensure they can be heard by the interpreters?

[The Vice-Chair, Conservative, John Barlow]

Yes, the first group of witnesses did.

The second panel has not.

I would like to welcome our witnesses for the first panel.

As an individual, we have Richard Gray, professor, from the department of agriculture and resource economics at the University of Saskatchewan, by video conference. We have Tristan Skolrud, associate professor, University of Saskatchewan, also by video conference. From the Canadian Federation of Agriculture, we have Mr. Todd Lewis, second vice-president, and Frank Annau, director of environment and science policy.

Each witness will be given up to five minutes for their opening remarks. Afterwards we will proceed with questions from our colleagues.

I will give you a signal. I will just raise my hand when you have about one minute left in your presentation.

Welcome, everyone. I'm certainly looking forward to the testimony today. We'll start with Professor Gray.

You have the floor for five minutes.

[Richard Gray, Professor, Department of Agricultural and Resource Economics, University of Saskatchewan, As an Individual]

Thank you, Mr. Chairman.

I'm a professor and grain policy chair at the University of Saskatchewan. I also provide labour and marketing advice for my son, Eric, who operates a 3,000-acre family grain farm in Indian Head, Saskatchewan. By the way, we rely on grain aeration and do not own a grain dryer.

In the absence of explicit policies that recognize the role that crop production plays in the removal of atmospheric carbon, I'm in favour of the tax relief offered in Bill C-234. I would go further to advocate for public investments in research and extension, and direct producer support for investments in less greenhouse gas-intensive grain drying and heating options. As a well-trained economist, I understand that pollution pricing is an efficient way to incorporate external pollution cost into private decision-making. As a grain farmer and an agricultural science graduate, I also recognize that every tonne of harvested grain contains more than a tonne and a half of CO2 that was removed from the atmosphere.

Ideally, this sequestration of carbon should be subsidized at the external cost of carbon. Similarly, when grain is consumed or burned, the carbon emissions should be taxed at this same rate. Unfortunately, neither the sequestration of carbon in grains nor the emissions from burning grain are included in the global greenhouse gas accounting system.

For example, the CO2 that you're breathing out this afternoon is not included as part of the Canadian greenhouse emissions, nor are the CO2 emissions that come from livestock or from trucks burning biodiesel. CO2 emissions coming from burning or digesting grain and other biomass are deemed to be emissions-free. They're assumed to be emissions-free only because it is also assumed that some farmer has recently removed this carbon from the atmosphere. While treating biofuel emissions as carbon-free worked well for the biofuel industry and consumers, the farmer who has actually removed the carbon from the atmosphere receives no explicit credit for this sequestration.

I first realized this flaw in greenhouse gas accounting about three years ago, when looking at about 4,000 tonnes of harvested grain, all rich in carbon and all of which had come from the atmosphere. Since then I've done a lot of reading and discovered that Searchinger and others published an article in 2009 in Science—perhaps the most prestigious journal in the world—entitled “Fixing a Critical Climate Accounting Error”. Despite over 600 citations to this important article, the flaw in the accounting system has not been addressed.

By not measuring grain-related emissions, the incomplete accounting creates strong incentives to use grain to produce biofuels. However, because the grain sequestration is not measured, there are no corresponding incentives to produce the additional grain required for the biofuel. Searchinger and many others, including me, argue that the effect of this is higher grain prices, increased food insecurity, and the carbon-intensive clearing of rainforest and peatlands for agricultural production.

Given it is unlikely Canada can change this flawed international accounting, Canadian policy-makers need to keep a fundamental policy trade-off in mind. If the Canadian taxation of greenhouse gases, or other policies, result in fewer grain exports, these reduced exports will increase international grain prices and will have to be accommodated in the rest of the world through either reduced food consumption or increased greenhouse gas emissions elsewhere. By removing the taxation of grain for grain drying, I believe the amendments contained in Bill C-234 may approximately align with this broader global perspective.

Finally, Mr. Chair, I recognize the enormous power of research and innovation to solve these problems. Finding ways to efficiently reduce greenhouse gas emissions is an important public-good problem that requires public investment. Research investment is needed to continue to develop more sustainable grain drying and heating options. Programs that help producers to benchmark their emissions relative to similar farms may help them identify opportunities for reduction. Finally, using subsidies to increase investment in more efficient systems can reduce emissions without jeopardizing our grain production, which is so much needed in the rest of the world.

That, Mr. Chairman, concludes my remarks.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Gray. You're right on time.

Now we'll go to Mr. Skolrud for five minutes, please.

[Dr. Tristan Skolrud, Associate Professor, University of Saskatchewan, As an Individual]

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.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much. I appreciate your testimony.

Now we'll move to the Canadian Federation of Agriculture and Mr. Lewis, or whoever is going to provide your presentation.

[Todd Lewis, Second Vice-President, Canadian Federation of Agriculture]

Good afternoon, everybody. My name is Todd Lewis. I’m a grain, lentil and canola farmer from Gray, Saskatchewan, and second vice-president of the Canadian Federation of Agriculture. I am joined today by our environment and science policy director, Frank Annau.

The CFA is Canada’s largest general farm organization and represents over 189,000 farmers and farm families nationwide. Canadian producers sit at the centre of an agri-food system that provides one in nine Canadian jobs and contributes nearly $140 billion annually to the Canadian economy.

On behalf of our producers, we thank you for the invitation to speak to Bill C-234. We believe the bill offers great relief for farmers by exempting natural gas and propane from the carbon price, particularly for use in activities such as recirculating aquaculture operations, feed preparation and steam flaking, as well as grain drying and livestock heating and cooling.

These latter two activities are critical to mitigating climate impacts such as drying wet grain during extreme autumn rainfall, cooling livestock to prevent heat death during summer heat, and heating during extended cold periods in the wintertime.

We understand that the carbon price is a market signal for producers to adopt low-emission energy alternatives wherever possible, but over the past year that signal has been dwarfed by skyrocketing costs for inputs such as fertilizer, gasoline and diesel. Even when fuel prices aren’t at record highs, farmers constantly seek to increase fuel efficiency wherever possible.

Current high prices across all fuels and inputs take away working capital to invest in that efficiency, capital that is even further eroded and reduced by the price on carbon for natural gas and propane. Where potential alternatives are available, that means less money to invest in solutions such as energy-efficient grain dryers. Where no practical alternatives are available, that means producers simply pay more for practices that are essential to food production without the option of reducing emissions.

According to the Parliamentary Budget Officer, half of all farmers in 2019 either barely broke even or actively lost money. With farm debt now exceeding $122 billion and a series of interest rate increases over the past year, the pressures on farmers’ margins make it challenging to invest in the future. With current debt and inflationary impacts, the carbon price simply adds a financial burden that reduces producers' ability to invest in sustainable technology and practices.

However, by ensuring that the farm fuel exemption of the Greenhouse Gas Pollution Pricing Act is truly reflective of critical on-farm practices, Bill C-234 allows farms to respond to market signals by freeing up cash to invest in emission reduction solutions, including precision agriculture technology, solar panels, anaerobic digesters and future innovations as they come available.

We respect recent efforts with Bill C-8 to provide relief to farms through carbon rebates. Unfortunately, these efforts do not adequately respond to the highly variable fuel requirements and carbon price impacts of different forms of production, regions and climate conditions experienced by farmers across Canada

The inclusive exemption proposed under C-234 is the most targeted means of ensuring that carbon pricing isn’t unduly taking away capital needed to make timely investments in the sustainability of operations where no viable alternatives exist today. Even without the carbon price, farmers are constantly focused on reducing input costs and adopting efficiencies.

Farmers are on the front lines of climate change. We are stewards of the land who are invested in the long-term sustainability of our natural resources. We’re also climate solutions providers, sequestering millions of tonnes of carbon, protecting biodiversity and grasslands, and utilizing the latest technologies to reduce fuel and water use. This has resulted in a 50% decrease in emissions intensity from 1997 to 2017. Bill C-234 will help producers drive emissions even lower by allowing them to remain competitive while making investments in sustainability.

Canadian producers strongly support this bill, and we at CFA strongly encourage its timely passage through Parliament.

Thank you again for this opportunity, and we look forward to questions.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Lewis. I appreciate your testimony.

I just want to let the committee know that we have Ms. Gladu subbing in today for Ms. Rood.

Welcome, Ms. Gladu, to the committee.

We also have Mr. Masse subbing in for Mr. MacGregor.

I appreciate your coming.

I'd also like to welcome Ms. Larouche, who is replacing Mr. Perron.

We will turn to the Conservatives.

Mr. Steinley, you're up for six minutes.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

Thank you very much, Mr. Chair. I appreciate everyone for being here.

There were a lot of numbers that came out this afternoon about where we are with carbon and carbon sequestration, in particular. Professor Gray said that for every tonne that's taken out, 1.5 tonnes of carbon have been sequestered.

Mr. Gray, is that an estimate, or do you have data to prove that?

[Richard Gray]

The actual number that's been used in previous studies, including some Agriculture Canada estimates, is 1.65 tonnes of CO2 per tonne of grain on average. I use 1.5 tonnes as a conservative estimate of that.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

We love to have conservative estimates. Thank you very much. I appreciate that.

I think something a lot of people don't realize is how much our producers sequester when they produce crops, and it's a message that we need to get out there, so I appreciate your bringing that number to the committee.

Dr. Skolrud also talked about the fact that, in Canada, agriculture emissions are 8% of the country's emissions. That is something we need to talk about more, because it's a very good number. The world average of a country's emissions coming from agriculture is 25%.

I'll ask Mr. Lewis this. Wouldn't a better use of our innovation and technology be to help other countries get to where we are? Eight per cent should be a laudable goal for other countries. Instead of punishing our farmers and not proceeding with this bill, shouldn't we be giving our farmers a break and allowing them to outsource some of our great technology to other countries to get them to where we are?

Wouldn't it be a better use of our time to make sure that the climate is more sustainable throughout the world, rather than punish our farmers here in Canada?

[Todd Lewis]

I think farmers, especially in western Canada, with a lot of the technology such as direct seeding.... Zero till was invented in western Canada. It was invented in Saskatchewan.

We see lots of that technology being exported and the manufacturing numbers out of Saskatchewan that.... Our air drills, those systems and that technology are being exported around the world.

Canadian farmers are world leaders in all kinds of sustainability practices, and recognition of that is important. I agree with you. Those numbers in Canada show our success and how good Canadian farmers are at sustainable practices. Recognition of that is important.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

Yes. I agree with that. Thank you very much. I appreciate that.

Sometimes, at the agriculture committee, we should talk about some of the great things our producers are doing and not always come to the committee with the thought, “We have to force these producers to do better when they're some of the best in the world.”

I would like to go on to another question, and I've asked it at a few other committees. You brought up zero till, Todd, so I'll ask you.

Do you remember there being a punitive government policy that forced producers in western Canada to come up with zero till and direct seeding?

[Todd Lewis]

No. It was a drive to efficiency. It's an example of farmers being driven. It's a happy coincidence that it is carbon-friendly, but it is a drive to efficiency, using fewer passes to put a crop in, less fuel and fewer inputs. All of those things are very important.

Our technology, the entire agricultural system and crop development have been geared toward drought-tolerant crops. Drought-tolerant crops typically have more roots, and more roots sequester more carbon. It's an example of how the system we have here in Canada is sustainable. Farmers have gone that way because it makes sense, and it makes economic sense as well.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

If it makes economic sense, generally, farmers are going to get to where they need to be.

I have a couple more questions for you, Todd. You are representing a lot of producers here today. Do you know any producers for whom the carbon tax on their farm is revenue-neutral?

[Todd Lewis]

Not that I understand.

In western Canada, specifically, we have a lot of issues with the money that's paid on grain transportation, for instance, with carbon tax. The railroads pass that tax on diesel fuel and their operations directly to farmers. In a lot of cases, it's thousands of dollars. There's no way for farmers to recoup that, and there's no incentive for railroads, for instance, to improve their carbon footprint if they can pass the cost along.

In our experience, producers are starting to feel the pinch of the carbon tax. The rebate programs and so on should start keeping up with what the actual costs are.

[Warren Steinley, Conservative, Regina—Lewvan, SK]

I think that if you speak with any producer, if they can decrease their fuel consumption on farm, it's something they want to do. Fuel is one of the largest costs, other than fertilizer and chemicals, when it comes to the on-farm production and the harvesting.

I'd say that another good technology that has helped in reducing emissions is something like GPS field mapping.

Could you just say a couple of words about that? If we use that technology and take what we do here in Canada around the world, would that help to reduce emissions in the agriculture sector as well?

[Todd Lewis]

Yes, absolutely. Variable rate technology and GPS.... Far more efficiency in passes in the field and lower numbers of passes in crops are a huge advantage for producers here in Canada.

[The Vice-Chair, Conservative, John Barlow]

Thank you very much, Mr. Steinley.

We go now to Mrs. Valdez for six minutes, please.

[Rechie Valdez, Liberal, Mississauga—Streetsville, ON]

Thank you, Mr. Chair, and thank you to the witnesses who have joined us today.

Through you, Mr. Chair, I'll direct these questions to Dr. Skolrud.

Last week a witness from the David Suzuki Foundation said that carbon pricing reduces transition costs. What would you say to those who are skeptical of moving away from fossil fuels?

[Dr. Tristan Skolrud]

I would say to those who are skeptical of moving away from fossil fuels that the transition is coming and there are public policies we can undertake to make that transition not be as stark when it gets here.

The prices in most renewable technologies are still too high to warrant widespread adoption, but taking steps now will help make that adoption much more convenient when it eventually happens.

[Rechie Valdez, Liberal, Mississauga—Streetsville, ON]

Thank you.

Can you clarify how investing in clean technology will be more cost-effective five years from now, as opposed to the choice to save money today by continuing to use fossil fuels and the impacts of that?

[Dr. Tristan Skolrud]

In investment, especially in these areas, there's a lot of efficiency to be gained through the process of learning by doing. If we start investment now, what we learn every year will lead to a technology with a lower marginal cost when it's eventually deployed.

That's one reason why the time path of carbon taxation is so important. It's important to start with an adequate price early enough to facilitate that type of investment, if that's the goal society wishes to undertake.

[Rechie Valdez, Liberal, Mississauga—Streetsville, ON]

Do you believe Canada's carbon pricing system is adequate, or should it be strengthened? If so, how?