Hon. David M. Wells moved third reading of Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act.

He said: Honourable senators, today I rise to speak to Bill C-234, An Act to amend the Greenhouse Gas Pollution Pricing Act. I would like to begin again by thanking the Standing Senate Committee on Agriculture and Forestry for their study of this bill; the chair of that committee, the Honourable Senator Rob Black; and the vice-chair, the Honourable Senator Paula Simons, who also chaired one of the meetings. I would like to thank all committee members, both regular members and those who came in for the rigorous discussion.

There has been some commentary on the presence of the non‑regular members leading discussions on certain aspects of the bill’s study, but I want to note that no senator plays a subordinate role on a committee. Aside from voting privilege, it is the right of any senator to join a committee for the study of a bill, and they have every equal right to do so, and I welcome that, especially when their views are not in accord with mine.

As we have heard in the debate at the report stage, the committee held 10 hours of meetings, heard from 24 witnesses and received 12 briefs in addition to further debate all senators listened to at report stage on Tuesday.

Colleagues, as you know, this bill amends the Greenhouse Gas Pollution Pricing Act, also known as the carbon tax, to provide an exemption for propane and natural gas for agricultural purposes. It is a commonsense bill which I believe is worthy of the support of this chamber for a number of reasons. I will outline these for you.

First, the purpose of the carbon tax is to create an incentive for consumers to reduce their use of carbon-intensive fuels by adopting more efficient and lower-carbon options. This is a worthwhile objective; however, farmers have no viable fuel alternatives to which they can easily switch; it is either unavailable or cost-prohibitive. Where it has been neither of those, farmers, ranchers and growers have switched because it makes business sense to do so.

In my speech at report stage, you will recall that I spoke about the added installation of sun shields, increased ventilation and many other initiatives that can make their operations more efficient when it comes to their fuel costs. This means that retaining the carbon tax for propane and natural gas does not serve the purpose. This is even more clear when we note that diesel and gasoline — common fuels for heaters, coolers and grain dryers — are exempt from the carbon tax. This point was raised repeatedly at committee. The Ontario Federation of Agriculture put it this way in their brief:

. . . the fuel charge in Part 1 of the Greenhouse Gas Pollution Pricing Act is an ineffective mechanism to drive greenhouse gas emission reductions in the agricultural sector in a short to medium term outlook. With no viable alternatives to propane and natural gas for grain drying and barn heating, and high price inelasticity for energy use, the charge collected on these fuels simply takes money out of farmers’ pockets, who are already working with very tight margins.

The carbon tax is supposed to send a price signal to incentivize a transition to lower carbon-emitting fuels. However, because of the absence of such alternatives, this price signal does not work when it comes to propane and natural gas used for agricultural purposes. An exemption — and that is the focus of this bill — is warranted.

Farmers can already apply for an exemption certificate which exempts them from paying any carbon tax on gasoline and diesel fuel. Bill S-234 merely seeks to extend that existing exemption to propane and natural gas. This doesn’t undermine the effectiveness of the carbon tax but is a logical extension of the existing policy, especially because that propane and natural gas are considered transition fuels and thus emit less carbon in the atmosphere than diesel and gasoline.

In addition to the existing exemption on gasoline and diesel fuel, the government also introduced a rebate which acknowledged the need to provide relief from the carbon tax on propane and natural gas used for agricultural purposes.

When the rebate was announced in the Economic and Fiscal Update 2021, the government stated:

Recognizing that many farmers use natural gas and propane in their operations, and consistent with the Budget 2021 commitment, the government proposes to return fuel charge proceeds directly to farming businesses in backstop jurisdictions via a refundable tax credit, starting for the 2021-22 fuel charge year.

The public policy objective was clear: to return fuel charge proceeds derived from agricultural use of natural gas and propane directly to farming businesses. Regrettably, however, the rebate fails to achieve this objective because it is calculated according to farm size and, to quote the Department of Finance:

There is no link between propane or natural gas actual usage on a farm and the amount of credit received.

Colleagues, this means that the rebate is not actually a rebate, because it is not connected to actual carbon tax costs. Instead, it is an ad hoc refundable tax credit calculated at $1.73 per $1,000 of eligible farming expenses for all farms. Eligible farming expenses are those amounts deducted in calculating income from farming for income tax purposes, excluding any deductions arising from mandatory and optional inventory adjustments and transactions with non-arm’s length parties.

To be clear, this means that the non-rebate rebate has no connection to actual expenses incurred by farmers from the application of the carbon tax on propane and natural gas. It is not linked.

Colleagues, there has been some discussion about double‑dipping on the rebate and the exemption, and I would like to address that here. You will recall Bill C-8, sponsored in the Senate by the Honourable Clement Gignac, which addressed that rebate. Here is what we heard: Jenna Robbins, Senior Director, Strategic Planning and Policy from the Department of Finance, said the Minister of Finance sets the payment rate. If Bill C-234 were to pass, the payment rate would be set to zero. This was also mentioned at the bottom of the older Library of Parliament report that was circulated to some colleagues earlier this week.

Another measure the government could take to ensure there would be no double-dipping, in addition to the one outlined above, is a policy directive to the CRA to stop processing payments past the date on which C-234 receives Royal Assent. This was mentioned in the What We Heard Report from the Agriculture Carbon Alliance. We can expand on that: The formula in Bill C-8 has the ability to adjust the qualifying rebate days within a taxation year. Therefore, the CRA has the ability to process rebates up until the date on which C-234 becomes law. After that point, the Finance Minister can set the payment rate to zero. Eventually, the Income Tax Act would be amended to remove the vestigial provision brought in under C-8 using a legislative vehicle like a Budget Implementation Act.

Colleagues, the government’s objective was correct; many farmers use natural gas and propane in their operations, and the fuel charge proceeds from those fuels should be returned directly to them. Regrettably, the rebate does not accomplish this, which is why Bill C-234 is warranted and necessary. It will achieve the stated objective.

Colleagues, we should also support this bill because retaining the carbon tax on propane and natural gas not only fails to reduce carbon emissions, but also inhibits farmers’ efforts to transition to lower-carbon energy options. The reason for this is quite simple: It takes money out of the pockets of farmers, which cannot be recaptured by passing on the cost immediately or changing to a low-carbon fuel source. This means that rather than furthering the public policy purpose of the carbon tax, it works against it.

You’ll recall that I noted in my report stage speech that one medium-sized poultry operation would be paying $250,000 per year once the carbon price reaches $170 per tonne. Any payback analysis that included a yearly contribution like that would make a far more efficient capital investment decision that would actually go toward reducing emissions from barn heating and cooling and grain drying.

The Parliamentary Budget Officer, or PBO, reported that the carbon tax on natural gas and propane will cost farmers $978 million by 2030. This will extract almost $1 billion from the farmers’ bottom line, which significantly impacts their ability to invest in new technologies. By passing Bill C-234, we can help ensure that farmers retain this capital in their operations, giving them greater opportunity and resources to continue reinvesting in more sustainable farming practices.

Implementing Bill C-234 would be good for farmers, ranchers and growers and better for the environment because it acknowledges that propane and natural gas are lower-emitting fuels and does not disincentivize operators from using them.

Colleagues, while federal programs such as the Agricultural Clean Technology Program and tax rebate programs are aimed at providing relief to farmers from the fuel surcharges for natural gas and propane, these programs have proven difficult to access and are oversubscribed. The programs are welcomed and needed, but they reach only a small percentage of farmers.

Further, these programs only cover a portion of the actual costs expended by farmers in order to upgrade their fuel source. This means that farmers must be in a position where they need to replace their grain dryers before the program becomes economical for them. The Senate Standing Committee on Agriculture and Forestry learned that a grain dryer will last for decades and is a significant capital purchase. Upgrading them just because the government will cover a portion of the cost does not mean such a move is automatically economical. Even if the government’s budget for these programs were unlimited, farmer uptake would not be.

The final reason that I would like to give you today for supporting Bill C-234 is because the carbon tax on natural gas and propane places Canadian farmers at a disadvantage in comparison to international competitors who are not subject to similar fuel charges. That means our businesses are automatically less cost-efficient than their competitors, and this additional cost is not only more expensive for farmers but also Canadian consumers.

Nicholas Rivers, an associate professor at the University of Ottawa, told the committee:

There are some exemptions to the carbon price for fuels used on farms, but these exemptions currently do not apply to fuel used for grain drying or for heating buildings. This means that grain farmers face the full carbon price on fuel used for grain drying, and do not receive output-based rebates. However, like cement and steel, grains are an internationally traded commodity, and there are legitimate concerns that the carbon price puts Canadian grain farmers at a disadvantage relative to their international peers.

Colleagues, farmers are price takers, not price makers. Thus, in order to stay competitive, they are forced to absorb the cost of the carbon tax into their operations and charge more in the following years if it is in their power to do so, and often it is not.

Here is how the government put it in their backgrounder on the Greenhouse Gas Pollution Pricing Act, or GGPPA:

The purpose of the GGPPA is to reduce greenhouse gas emissions by ensuring that carbon pollution pricing applies broadly throughout Canada.

At the same time, the Government recognizes that particular groups or sectors have a need for targeted relief from the fuel charge – in particular because of the small number of alternative options they may have in the face of carbon pollution pricing.

Colleagues, exemptions are not a bug or a “carve-out.” I recall sparring with our colleague Senator Woo over this word at second reading back in June. The government’s backgrounder specifically stated that exemptions are a feature of a carbon tax system. They are necessary to ensure that the policy is targeted and effective and does not create undesirable results. Exemptions already exist for farmers and fish harvesters, along with additional targeted relief for residents of rural and small communities, users of aviation fuels in the territories, greenhouse operators, power plants that generate electricity for remote communities, Indigenous Peoples and — as we heard recently — those who heat their homes with oil.

Bill C-234 is not breaking new ground. It is one small but necessary adjustment to the existing suite of fair exemptions and, in this case, will have significant impact on the ability of farmers to compete on a level playing field with international competitors and continue to adopt more efficient technologies. Canada’s farmers, ranchers and growers have spoken with one voice on this bill, and we’ve all heard it loud and clear.

Finally, colleagues — and perhaps on a more personal note — I signed up to sponsor this bill not because I come from a farming background or even a strong farming region. I’m from Newfoundland, and there is probably a good reason the Agriculture Committee didn’t go to a place called “The Rock” for a soil study. I wanted to be the sponsor because it seemed like advocating for fairness was the right thing to do.

The debate on this bill has been vigorous, contentious, affects significant public policy and has forced me to do my homework. It has included not just honourable colleagues but sparked an important debate among farmers, ranchers, growers, public policy-makers and consumers. It is an excellent example of what the Senate does best, and it has been an honour to be a small part of it with you. Thank you.