The carbon tax

Farmers see themselves as the good guys in the carbon debate, with good reason. Is agriculture going to pay anyway?

It had been another frigid day in Manitoba, snow swirling as farmers and ranchers gathered at a downtown hotel, but once inside it didn’t take long for the temperature to rise. They’d gathered for Keystone Agricultural Producers annual general meeting, where one issue outpaced the rest — carbon pricing.

It was standing room only, with long lines at the microphones.

Carter McKinney.
photo: Shannon VanRaes

“With young farmers we have little to no equity in our farming operations… so things like this carbon pricing could really affect our entrance into the industry,” aspiring farmer Carter McKinney told the crowd.

“We are at the bottom of the food chain when it comes to passing the negative effects of carbon pricing,” added Bailey Sigvaldason, who was quickly followed by Paul Gregory at the microphone.

“We know this carbon tax is coming down, we know it’s going to be $30, $40, $50 a tonne. As a farmer, as an altruistic citizen of the world, we have to be efficient, we have be aware of the laws coming down, we have to work with government,” Gregory said before yielding the floor and letting yet another producer take his place.

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Manitoba’s producers are not alone in their concerns. Similar discussions are ongoing in parish halls, meeting rooms and community centres across the country as farmers grapple with how the drive to reduce greenhouse gas emissions will affect their farms and their futures.

Provinces must design and implement their own plans to reduce greenhouse gas emissions or they will have one imposed on them by Ottawa, beginning with a carbon price of $10 per tonne in 2018. Having ratified the Paris agreement on climate change, along with China, India, the European Union and others, Canada has agreed to cut its emissions by 30 per cent from 2005 levels by 2030.

But when Prime Minister Justin Trudeau made the announcement last year, it was clear all provinces were not on the same page. British Columbia already had carbon pricing, but other provinces wanted cap-and-trade systems and Saskatchewan wanted none of it at all — Premier Brad Wall refused to participate, threatening to sue the federal government.

“We’re really in favour of what the province is doing now,” says Todd Lewis, president of Agricultural Producers Association of Saskatchewan. “The premier’s come out very forcefully with his position and we support it.”

That doesn’t mean agriculture doesn’t want to reduce carbon emissions, he adds, just that he believes pricing carbon isn’t the way to go. The fourth-generation farmer says introducing a price on carbon will unfairly punish producers while also stifling other industries in the province.

“Certainly from our viewpoint we have a good story to tell in agriculture,” Lewis says. “We’ve been following a low-carbon model for a number of years and certainly made improvements over the years with our fertilizer application and our seeding methods… zero till, certainly the new engines and the technology there that we use in our equipment — even the variety of crops we grow now and the yields that we’re achieving.”

For Paul Glenn, chair of the Canadian Young Farmers Forum, what’s driving opposition to carbon pricing, which many call a tax, is the deep uncertainly around how it will be implemented and what it will end up costing. Glenn has tried to pin down how the push to meet Canada’s climate change commitment will have an impact on his family’s mixed farm in Keene, Ont., but hasn’t had much luck.

“It’s not exactly clear how it’s going to affect us right now,” he says. “I mean Ontario and Alberta are going to be the same but I believe Quebec is a different model so it’s going to affect farmers differently across Canada.”

What is clear is that input costs will increase, says Glenn.

“And it’s not clear yet how the credits, so to speak, are going to be compensated for, especially on the farming side,” he says. “That’s a big question.”

Ontario launched its cap-and-trade system on January 1 and will link it with permit systems in Quebec and California next year in a bid to keep costs as low as possible. Emission limits will shrink each year with the goal of forcing emissions 80 per cent below 1990 levels by 2050.

Companies must purchase allocations for each tonne of carbon burned every year, with revenue from Ontario’s program estimated at $1.9 billion per year. That cash is slated to fund the province’s Climate Change Action Plan — if the province stays the course, that is.

Glenn notes that Ontario’s current Liberal government has been the driving force behind the emission reduction plans, but that like all governments it’s a temporary one. The next election could change everything, he says.

“With our government changing, probably, within the year or within next year, you can’t plan — it’s impossible,” Glenn adds.

Ron Bonnett, president of the Canadian Federation of Agriculture, agrees that the variation from province to province makes it difficult to estimate what the new emission targets will ultimately cost Canadian farmers. He’d like to provide producers with more information, but that’s not a possibility — at least not at the moment.

“We haven’t got enough information,” Bonnett says, noting that the wide variety of exemptions, inclusions and grants associated with policies in each province just adds to the current mood of uncertainty.

“To really say there’s been a full cost analysis of what the impact is wouldn’t be correct,” Bonnett says. “The thing is you’d almost have to do that cost analysis on a province by province basis to see, okay, if this province is using a carbon tax, how is that going to impact us, and if another province is using a cap and trade system what is that impact going to be… I think that there’s also a lot of confusion right now on how the whole carbon system is going to work.”

In Alberta, which has implemented a hybrid emission reduction system including carbon pricing and elements of cap-and-trade, Bonnett says producers are likely to see increased costs around $1 or $1.50 an acre. Farm fuel will be exempt from carbon pricing in Alberta, but the federation representative says that it’s the cost of fertilizer that is the real concern.

Dale Beugin, research director at Canada’s Ecofiscal Commission, says it’s simpler to anticipate cost in a carbon pricing system, but there are many factors to consider. Provinces need to look at everything from which industries are vulnerable, to costs, to political blowback and implementation systems before making a decision on what works and what doesn’t.

“The real story with carbon price is that you have certainty as to price; it’s really transparent as to what the price of carbon is because it’s set directly by the tax rate. So if you’re in B.C., you know that the price of carbon is $30 a tonne,” Beugin explains. “Cap and trade is the other side of the coin; you don’t always know what the price is going to be because it’s set by this market for tradable permits, but you do know the extent to which you’re going to get absolute emissions reductions.”

British Columbia has what Beugin calls a “quintessential example” of a carbon tax system. “The tax is applied to fuel distributors in B.C., so if you are importing or selling fuels, whether it’s gasoline or diesel or coal, then you are charged a tax based on the carbon content of that fuel and that carbon content is really just chemistry,” he says. “So that is a pretty easy, pretty convenient way to tax the amount of carbon embedded in that fuel… but then you rely on the market to pass those costs on.”

And it’s the concept of passing costs on that troubles Lewis and other farm representatives.

“We’re price takers, not price makers,” Lewis stresses. “Any sort of carbon levy or carbon tax that is put on us is one we can’t pass on to our customers… we are in a world market place, and if the cost of our production goes up because of the carbon levy or carbon taxes, well then that is going to put us at a competitive disadvantage.”

Bonnett agrees, and so do many farmers and farm organizations. While climate change needs to be addressed, Canada also needs policies that reflect those of its trading partners, he says.

That’s especially true given U.S. President Donald Trump’s apparent desire to back away from some of his country’s climate change commitments.

“Canada is an exporter of food, so any costs that are driven into our system may put us at a competitive disadvantage to our trading partners,” says Bonnett.

Figuring out how carbon costs will affect competitiveness is complicated, says Beugin, adding it’s an issue for all industries, but particularly for trade-exposed sectors like agriculture. However, he also emphasizes the role carbon taxes play in competitiveness shouldn’t be overstated.

“It’s not the only factor that drives your bottom line, there are lots of reasons why you are competitive or not competitive, carbon is only one of many, many factors,” says the researcher. “I’ve even heard it argued quite convincingly that strong environmental performance for folks like those in agriculture can actually be a competitive advantage. If you are demonstrating sustainable farming practices, that may be even essential for your bottom line, so it’s not always fair to frame it around a single dimension of competitiveness, that’s only part of the story.”

Back at the Keystone Agricultural Producers meeting in Winnipeg, the discussion has turned to another familiar theme — carbon sequestration.

“We are stewards of the land, we care about what we do, we sequester carbon with our crops,” says Jake Ayre, another young farmer and a student of agriculture.

“Ag is really the only sector that’s going to sequester any carbon in the ground and there was hope that we would be compensated for that and that’s what I’d like to see,” adds Glenn, touching on an issue raised by every farm organization Country Guide spoke with for this story.

The problem is that agriculture doesn’t actually sequester carbon in the soil, at least not in a permanent or solidly quantifiable way, according to experts. Soil scientist Mario Tenuta has been looking into the issue at the University of Manitoba and says more work needs to be done.

Mario Tenuta, University of Manitoba soil scientist.
photo: Shannon VanRaes

“It’s a very complex topic,” he says, explaining carbon sequestration is dependent on farming practices.

“Yes, a farmer can build soil organic matter and carbon today with a practice like converting annual fields to grasslands, pasture, but if they take it out of pasture or grassland, the carbon can go back to the atmosphere,” Tenuta says. “So the fact that it’s not permanent has never really made carbon sequestration in soil a really entertaining idea moving forward… as a way to give carbon credits to farmers. We’re never quite sure if it’s going to stay in there, because the farmer might change the practices.”

Then it gets even more complicated. “You might get a few bucks today for building some carbon in your soil, but does that mean you’re going to have to keep that carbon in your soil forever? What happens if you don’t? Does that mean you have to give your money back?” Tenuta asks. “I don’t know.”

Then the complications multiply because emission reductions under the Paris Agreement are calculated as reductions compared to 2005 emission levels.

That means farmers who adopted no till or converted land to pasture prior to 2005 would not be contributing to new greenhouse gas reductions.

Tenuta also adds there isn’t enough science around the issue of how much carbon crops actually store and by what mechanisms.

A lifetime of research on the subject has led William Schlesinger to similar conclusions. The biogeochemist and former Duke University professor recently retired from his role as president of the Cary Institute of Ecosystem Studies and says, in some cases, crop production can actually lead to a net release of carbon into the atmosphere.

While low-till and no-till systems are often lauded as a way to build up carbon in the soil — as is pushing marginal lands into production through irrigation or intensive nutrient application — what’s really being built up is a false narrative, he says.

“The real question is whether all those things work,” says Schlesinger. “The problem with no till, or conservation agriculture, is that definitely you can document more carbon in the surface of the soil but there’s often losses of carbon in the lower soil, below the depth that used to get plowed, and when you balance the losses below and the increases above, that kind of agriculture often becomes a wash.”

As for why the idea that agriculture sequesters carbon is so prevalent, Schlesinger said it’s long been in the interests both of government and of the private sector — such as biotech companies — to promote high-yield production methods as environmentally friendly or sustainable.

“There’s an immense group of people who are willing to lobby on behalf of agriculture and farmers as doing a good thing for the environment,” Schlesinger says. “And the people that have been looking at this carefully have largely been in universities and they don’t have any constituents, so their voices are not heard anywhere as loudly.”

Tenuta believes that if there is a way to provide emission offsets to producers, it lies with nitrogen, not carbon.

“To me, nitrogen is a way more exciting opportunity to get carbon credits,” he says. “Because if I do something in the 2016 crop year to lower my nitrous oxide emissions, that’s permanent, no one can take that away from me. I can’t do anything to put that back into the atmosphere, but with carbon, I can. So I tell farmers, hey, concentrate on the fertilizer, get those emissions down with lower nitrous oxide, and it’s much more clear-cut, it’s easier for policy makers, and so forth.”

But neither of those arguments garners much traction with producer lobbies. In Saskatchewan, Lewis says that research done in his province and elsewhere shows that agriculture does sequester carbon.

“There’s lots of scientists that would rebut that… Certainly a number of conservation groups in Saskatchewan have done some long-term research and I think certainly a number of scientists across the world wouldn’t agree with those statements,” Lewis says. If agriculture is not considered a source of carbon sequestration, he adds it could undermine the very basis of what a lot of provinces are doing to reduce emissions.

“You’ll get some pushback on that one, I guarantee you. Because I tell you what, 50 years of research is going to push back really hard on that. Like really hard,” he says. “That’s the hard part of this thing, it’s so hard to put your finger on it and then all of a sudden new information will come out and it throws everything into total flux again.”

Whether or not agriculture is currently sequestering carbon isn’t the point for Beugin. He says reducing emissions is not about rewarding industry for the status quo, it’s about changing best practices to facilitate new reductions in greenhouse gas emissions.

“What we want to do with our policies is move the dial. We want to do more than we’re doing.”

Many producers would disagree, and farm organizations across the country are asking for exemptions from elements of carbon pricing, as well as recognition or compensation for environmentally sustainable practices already in use. As an industry, they say agriculture is taking more financial hits than other sectors and it makes sense to support the people who produce food for Canada and the world.

“I think if they really want the programs to work, then they really need to work hand in hand with the farmers and not just let the farmers do it for free,” says Glenn. “Compensate the farmers for sequestering the carbon and taking care of the land, because ultimately that’s what they want done, but they want us to do it for nothing so why not compensate us?”

It’s especially difficult for young farmers to deal with rising costs, he adds.

“Typically the younger farmers trying to get into the market might have to pay a little bit higher land rent prices just to get in and get some land. So having extra costs, especially on the input side, whether it be equipment, tires, and fuel — especially, fuel it being the big one — I mean it makes it a lot tougher,” says Glenn.

But inputs and fuel are far from the only issues concerning young farmers. In Manitoba, the next generation of producers have also put forward concerns about social license, emphasizing that farmers risk loosing it if they push back too hard against carbon pricing or fail to recognize the impact climate change is having.

“We as young farmers are concerned about the long-term effects of what happens today, public perception of our industry, our ability to be profitable with the introduction of new barriers,” Sigvaldason tells the group assembled in Winnipeg. And when an individual suggests that carbon taxes be voluntary, refundable and paid for by urbanites, she adds that farmers can’t send the public the message that they don’t want to be part of the greenhouse gas solution.

“We want to send a message to the public that we want to be part of the conversation, we want to be part of moving forward and helping our environment, and making them pay to help us doesn’t send the message we want to help ourselves,” she says.

While the Manitoba government has yet to put forward a carbon pricing plan, Keystone Agricultural Producers are working with the province in the hopes carbon pricing will exempt on-farm emissions, such as those from manure-storage, livestock and the application of fertilizer. The organization also wants to avoid having carbon revenue end up as a general budget line. Instead, it wants revenue to fund alternative land use services and grants aimed at making farms more efficient.

“A carbon tax is coming — that has been made perfectly clear by the federal government,” Keystone president Dan Mazier says. “However, instead of waiting for a tax to be placed on us by Ottawa, the Manitoba government has opted to develop a made-in-Manitoba solution, something that’s in the works now. During this development process, KAP is striving to get the best deal for Manitoba farmers.”

Farmers in Alberta have achieved similar terms under that province’s carbon levy. The greenhouse industry there will receive an 80 per cent rebate on pricing applied to natural gas, and marked farm fuels are completely exempt. Low- and middle-incomes households will also be eligible for rebates, and grants are being offered for on-farm efficiency programs.

Greenhouse operators in British Columbia also received an 80 per cent rebate and while farmers in that province initially feared major repercussions when the carbon tax was introduced in 2008, a recent study has shown the province’s levy system has not reduced competitiveness, although the impact on farm revenue has not been fully examined.

The National Farmers Union is also working to address the burden that carbon pricing will put on farmers, particularly in provinces that have yet to implement a carbon reduction scheme, by pushing to return revenue to farmers.

“We are saying make it revenue neutral for the farmers,” said president Jan Slomp. “You collect revenue based on the carbon emissions of the production systems, but allocate that same amount of money in the farm community — and not the processor or input supplier, but allocate it back to the farm community and allocate it on the basis of the least carbon footprint.”

The national organization is also suggesting it’s time to reward farms that have the lowest emissions and re-evaluate the type of farms promoted through government policies.

“The mixed farm has been penalized by policies and the focus on commodities,” says Slomp, adding mixed farms present a real opportunity to change management strategies and reduce the need for costly inputs.

“The mixed farmers in Canada, those that have livestock and are producing cash crops, are actually fairly productive and fairly successful in generating farm income, as their fertilizer bill is less, substantially less,” he says. But Slomp acknowledges that moving to less intensive production systems can be a hard sell, particularly among established farm operators.

Ideologies around government’s role in the lives of Canadians can play another key role in how plans to reduce emissions are received. But there is the simpler explanation for resistance to carbon levies as well.

“I think there is this kind of gut reaction to taxes and even the word tax as a cost, but it’s not like other environmental policies don’t have costs too,” Beugin says. “You never really see those costs articulated as a dollar per tonne number, like you do in the carbon tax, but those costs are absolutely still there.

“The world is going this way and we have to do our part for emissions reductions… so if we’re going to do it, let’s do it in the most cost-effective way possible.”

About the author

Field editor

Shannon VanRaes is a journalist and photojournalist for Country Guide.

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