Carbon tax hike impact on ag ‘small’

An increased carbon levy and other measures aimed at achieving Canada’s emissions targets won’t affect agriculture relative to other industries, according to a new report.

The Parliamentary Budget Officer (PBO) released the document June 23 assessing impacts of the government’s plan to exceed 2030 Paris reduction targets for Canada’s greenhouse gas emissions.

“Our assessment shows the largest economic impact of reducing emissions will fall on the transportation and oil and gas sectors,” said PBO Yves Giroux in a statement.

The report assumed measures to meet Canada’s emission targets outlined in the recent budget would be the lowest-cost options.

“That is to say, they are inherently optimistic,” Giroux said.

Promoted as being an environmentally friendly spend and an economic kick-starter, the 2021 budget looks to usher in a smattering of new green policies.

“Increasing the federal fuel charge to $170 per tonne and tightening (output-based pricing systems, or OBPS) will help Canada achieve over half of the 168 Mt reduction projected in Budget 2021,” Giroux said. “Nonetheless, significant reductions from less visible non-price policies, already announced, will be needed to reach that objective.”

While there is a fairly proportional spread across sectors with reductions, agriculture is an outlier.

For example, the PBO estimates the added $120 carbon levy and output-based carbon market will reduce emissions by 96 Mt before 2030, but have the weakest effect in agriculture.

“Though the agriculture sector is subject to the levy on some of its activities, such as natural gas heating of buildings, the impact is small,” said the report.

An additional $120 in carbon pricing and OBPS will, according to the PBO, result in a one percent drop in agricultural emissions. That ranks lowest among the industries included. Electricity (31 percent), buildings (23 percent) and transportation (17 percent) expect the greatest reductions.

Non-price measures are also being used via a range of policies to combat emissions across the country.

Like the pricing measures, the PBO estimates a proportional distribution of reductions, with agriculture as an outlier. Electricity experiences the biggest proportional decline in the PBOs scenario.

All told, added price and non-price measures to combat climate change lead to a very limited amount of reductions in agriculture when compared to other industries.

According to the PBO, increasing the cost of carbon and tightening standards will adversely affect transportation and the oil and gas sectors, but agriculture’s real gross domestic product will grow.

Exemptions and opportunities in the output-based market mean agriculture is sheltered from the full cost of carbon pricing, relative to negatively impacted industries.

Workers in the oil and gas industries are projected to see the largest overall income loss, while real labour income is expected to “rise modestly” for workers in the agriculture sector.

Between 2018 and 2030, emissions in agriculture are expected to continue increasing.