Hon. Yuen Pau Woo: Honourable senators, I would like to add my voice to the second reading debate on Bill C-234. Let me first thank the sponsor, Senator Wells, for making the case for this bill, and the critic, Senator Dalphond, for his insightful critique.

I would have preferred to take some time to digest Senator Dalphond’s speech before delivering my own, but I know that there is some pressure to send this bill to committee tonight, along with a group of Senate public bills.

I would also like to thank the many Canadians who have written to senators to voice their views on this bill, especially Canadian farmers who are very much the subject of Bill C-234. I join with my colleagues in expressing my gratitude to and admiration for all who work in the agriculture and agri-food sector, which not only puts food on our tables but also generates enormous wealth for our country and is a vital part of Canada’s historical and cultural identity.

But farmers are not the only subject of the bill, and it would be a mistake for us to frame the policy question before us as one that is purely about the welfare of farmers. If it were simply about the welfare of farmers, the case for supporting the bill would be strong. It is important to recognize, however, that the bill is as much about reducing greenhouse gas emissions and meeting our international commitments as it is about the price of natural gas and propane on farms. After all, colleagues, we are discussing amendments to the Greenhouse Gas Pollution Pricing Act, which this chamber passed in 2018. This is not, in fact, a bill on farm support.

I should not have to remind colleagues about the existential threat to Canadians and, indeed, to all of God’s creatures from global warming due to the centuries-long increase in greenhouse gases, principally from industrialized countries.

A recent article in the journal Nature points out that a warm, dry spring has meant an early start to the fire season in Canada with the area burned so far — more than 4 million hectares of forest — already exceeding the amount razed during the entire 2021 extreme fire season.

This bill is an interesting case study in public policy analysis because of the different policy objectives that are implicated in Bill C-234 and the choice of public policy tools that one could apply to address market failures, such as greenhouse gas, or GHG, emissions, on the one hand, and the volatility of farm income and commodity prices on the other.

I commend this bill to students of public policy and law because it has a richness in helping them think about how to design sound public policy for conflicting objectives including, in this case, the dual problem of GHG emissions and volatility in farm incomes.

On the face of it, the bill seeks to expand the exemptions to farm fuel carbon pricing to include natural gas and propane for a period of at least eight years. In practice, however, what the bill does is remove a carefully designed market price signal for farmers to use less natural gas and propane in order to reduce GHG emissions.

The argument in favour of the exemption is the relative paucity of alternatives to natural gas and propane for the heating of farm buildings, especially grain dryers. Proponents of the bill have taken the most direct route to addressing this problem, which is to expand the exemptions. However, the most direct route may not be the best one, especially when there are conflicting policy objectives and if the direct solution, such as what Bill C-234 is proposing, undermines the mechanism behind the original policy.

In this case, the original policy of a charge on covered fuels is to induce a change in behaviour on the part of users, as well as to stimulate innovation towards the use of energy sources that are less polluting. Furthermore, the use of a price signal, such as a fuel charge, is technology-agnostic and transparent, as opposed to command-and-control type regulations that tend to encourage evasion and which allow for a non-transparent pass-through of price increases and markups.

To the extent that we agree on the need to incentivize investments in lower-carbon farming methods, the better solution to the problem of limited energy options for crop drying is not an exemption for those energy sources, but one which provides relief for farmers while preserving a price incentive to reduce the use of natural gas and propane and for investment in technologies that facilitate this change.

This is, in fact, what the government has already put in place by way of a refundable tax credit which aims to return fuel charge proceeds directly to farming businesses in backstop jurisdictions, recognizing that many farmers use natural gas and propane in their operations. This measure does not reimburse farmers for exactly the amount incurred on natural gas and propane, since that would undo the whole point of a fuel charge on those fuels in the first place. Instead, it reimburses farms according to size as a proxy for the amount of natural gas and propane used. It does so while maintaining the price signal to encourage farms to reduce their use of those fuels.

Again, that is a sensible approach that tries to preserve two potentially conflicting policy objectives: creating a price incentive to reduce the use of GHG-intensive fuels and addressing the current lack of alternative energy sources for grain drying and the like. Even if the wholesale shift to lower-carbon-emitting energy sources, such as biomass, is not possible for some farming operations, the existence of a price signal will create the incentive for farmers to invest in energy-saving measures related to building design, insulation and the use of higher-efficiency furnaces, which Senator Dalphond touched on nicely.

Perhaps farmers are already making these investments. That would be terrific. And perhaps a price incentive will not be sufficient for them to make major energy-efficiency investments, but you can be sure that an exemption for eight years would encourage procrastination and delay. You can be just as sure that when the eight years are up, the temptation for farmers to seek an extension to the exemption will be as great as the political pressure to accede to it.

Proponents of the bill tend to frame it in the context of the price and income volatility that farmers face that makes a fuel charge on natural gas and propane even more difficult for them to manage. As the argument goes, farmers are price takers for the commodities sold on the world market, and therefore they cannot pass on higher input costs, such as a surcharge on fuel. But it is important to remember that price and income instability is a structural challenge in Canadian farming and that policy-makers working with farmers have, over the years, designed many assistance programs to assess those structural challenges.

The best of those programs seek to reduce business risk and stabilize incomes without reducing competition, distorting production, discouraging innovation and penalizing consumers. One example is a program to advance payment to farmers through interest-free loans that help them optimize the timing of delivery to take advantage of the best prices without incurring a financial penalty.

Colleagues, if our concern is a new kind of price volatility and income instability problem in the farming sector, the solution is not to tamper with a carbon-pricing scheme, which distorts that policy objective, but to look at broader business-risk-management programs that are specific to the problem. That is, of course, a basic rule in the design of good public policy, but it is often neglected by lawmakers who are more interested in the politics of a quick fix and the emotive appeal of helping farmers.

An argument has been advanced that the exemption of natural gas and propane will allow farms to use those savings to invest in green technology. I don’t accept that argument, because money is fungible and any savings can be used for a variety of purposes, only one of which is an investment in green technology. In any case, the exemption of natural gas and propane from the fuel charge removes the price incentive to invest in those alternatives; indeed, with the increase in the carbon price to $170 per tonne by 2030, that incentive becomes stronger over time.

Even if you are of the view that the price right now is not sufficient to stimulate investment in lower-carbon-emissions production methods, there is the option of direct support to farmers, such as the Agricultural Green Technology Program currently offered by Agriculture and Agri-Food Canada.

In any case, the suggestion that natural gas and propane fuel charges under the GHG pollution-pricing scheme will be debilitating for farmers is misleading. Agriculture and Agri-Food Canada conducted an analysis of the cost of drying grains based on data from provincial governments and other sources. That analysis highlights that the contribution of the federal carbon price to the cost of drying grain in 2019 ranged from between 0.05% to 0.38% of an average farm’s net operating costs, equivalent to $210 to $774 that year.

The reason why those numbers are so small is because grain-drying costs make up a very small percentage of farm operating expenses. Assuming no carbon price, the figure, according to Agriculture and Agri-Food Canada, is 0.4% in Alberta, 1.7% in Saskatchewan and 1.2% in Manitoba.

Another way to look at this issue is to consider the price of natural gas relative to grain and oilseed prices. If you look at a 20-year time series of natural gas prices and compare them with the price of grains, what you will find is a steadily declining ratio between the two. Looking back 20 years, and taking 2007 as the year when the ratio between natural gas prices and grain prices is one, you will see that the ratio was as high as 2.6 in 2003. By March 2023, this year, the ratio had fallen to just 0.5%. The same is true of oilseeds.

In other words, the cost of natural gas relative to the prices of grains and oilseeds has declined massively over the last 20 years.

There are a number of other problems with Bill C-234, some of which likely derive from the fact that private members’ bills do not have the benefit of the legal drafting finesse of the Department of Justice or the oversight of central agencies and other government departments in avoiding loopholes and unintended consequences. Senator Dalphond has touched upon a number of them already. I will just point out one more, which is in the definition of “farm buildings.” There could be some ambiguity as to what constitutes “farm buildings,” particularly when farms use a common source of heating — natural gas, for example — for the barn, the dryer and the family home, and the complications arise in separating which parts of the costs are allocated to farming operations versus the maintenance of a family home.

Colleagues, Bill C-234 would mean that virtually all on-farm fuels are not subject to a carbon price. That is a massive exemption for a policy tool that works best when exemptions are kept to a minimum. Such a sweeping carve-out for farming simply puts a bigger onus on the rest of the Canadian economy to find reductions in their carbon emissions in order to reach our goal of net-zero emissions by 2050.

To summarize, what we are debating today is not whether we should provide relief to farmers who rely upon natural gas and propane for on-farm activities such as the drying of grain. The question, rather, is the best mix of policy instruments to address this challenge, recognizing that there are other policy objectives that have to be considered at the same time. The government has acknowledged this challenge facing farmers and responded with Bill C-8 in December 2021, with the tax credit to return fuel charges to farming businesses in backstop jurisdictions, which both Senator Dalphond and I have discussed.

As legislators, we should not be looking for the easiest solution to a problem, but, rather, the best solution. If we agree that greenhouse gas pollution pricing is a valid policy response to the problem of global warming and if our goal of achieving net-zero emissions by 2050 is valid, we should do everything we can to preserve the integrity of that policy.

Along with Senator Dalphond, I cannot help but suspect that the most ardent advocates of Bill C-234 do not share that commitment and that they would be happy for all GHG pricing, especially in backstop jurisdictions, to be eliminated altogether. I would not be surprised if the passing of this bill emboldens critics of carbon pricing to push for wider exemptions. In any case, other carbon-intensive industries that have abatement challenges would surely be in a position to argue for so-called “equitable” treatment if the entire agricultural sector is exempt from carbon pricing on essentially all on-farm fuels because of Bill C-234.

This bill, therefore, is not only a suboptimal way to address a legitimate problem faced by some farmers; it is also a dangerous precedent that could undermine Canada’s commitment to reducing GHGs and achieving our collective goal of net-zero emissions by 2050.

Thank you.

Senator Woo: Would you take a question, Senator Downe?

Senator Woo: You make the point that natural gas is not used in P.E.I. and therefore the province does not have the benefit of falling prices, which both Senator Dalphond and have I described. You mentioned that propane is a preferred source of energy. Can you confirm to the chamber that propane prices have also fallen dramatically? In fact, they have fallen by half in the last year.

Hon. Yuen Pau Woo: Thank you, Senator Wells, for your speech. You make some important points about the unique nature of agriculture in relation to the use of fossil fuels. The value of a carbon tax is greatest when it has few exemptions. My question with respect to the issue of agriculture being price takers is that prices go up and they go down, of course. Sometimes world prices go up to a point where there are windfall profits for farms, and sometimes they go down to the point where farms are at jeopardy of going bankrupt.

The traditional remedy for these kinds of problems in economics is price and income support. Why don’t we look to that kind of protection, if I can put it that way, rather than fiddling with a carbon tax and creating a carve out that might distort incentives away from our combined and collective goal of reducing carbon emissions?

Senator Wells: Thank you for that question, Senator Woo — it’s a good one. I don’t look at this as a carve out. This is an expansion to the exemptions that were provided in an earlier act. I think there was an oversight and, in fact, the chair of the House Agriculture Committee noted that, that this was an oversight. In fact, he supported this bill in the House.

This is also part of a program for farmers. I don’t think they want subsidies. Perhaps they will take them, but I think they just want a business that works for them and, where eligible, expenses at times when there are alternative fuels or alternative processes, they will use those. Right now, there are no alternative fuels or processes besides natural gas and propane, which are both, as you know, considered transition fuels.

They want to get better, but that’s why there’s a sunset clause on this. It would have to be considered to be renewed; it’s not ongoing. It automatically cancels after eight years.

Canadian farmers, growers and ranchers want to get better. They’re part of the solution in the environmental debate. I think this exemption simply expands where an oversight occurred in the earlier legislation.

Senator Woo: Thank you for the explanation. An expansion of an exemption is another word for a carve out, of course, but I appreciate that that’s what you’re looking for.

Your argument that increasing or preserving the margins of farmers so they can spend surpluses on innovative and less carbon-intensive technologies has a logic to it, but the point is that you need some kind of incentive for them to do that. There’s no guarantee that farmers will use the surpluses, fungible as they are, for that particular task.

Again, there are other tools by which we can incentivize farmers to use geothermal and solar and whatever else might appear, and this is through the means of direct incentives for those technologies.

Why are we not considering these other pathways that, on the one hand, are consistent with the universality of a carbon tax, recognizes the fluctuations, incomes and prices that farmers inevitably face, but also focus on incentives for specific carbon‑reducing technologies that may be available in the years ahead?

Senator Wells: Thank you for the question, Senator Woo. I’m sure those incentives are already there for migrating to alternative sources of fuel that have carbon neutrality, like geothermal, solar and wind, but we’re not there yet. We may be there in some small-scale operations, but we’re not there on an industrial scale.

Canada, among most countries, is a world leader in industrial farming. These are industrial-scale operations that don’t yet enjoy the benefit of geothermal and all the other things that may occur in the future through innovation, investments or other technologies, but this is what we have. The carbon tax is relatively new, and the industry has not caught up to it.

One day, it would be great if these industrial processes were carbon neutral. In regard to on-farm, I still push back on your claim that this is a carve-out because the system already exists where there are exemptions. This is just adding to those exemptions. We will agree to disagree.

This is further assistance for the ranchers, growers and farmers to reach where they need to be.