Measures needed to ensure fair application of carbon tax

Policy paper suggests that farms qualify as an emissions-intensive and trade-exposed sector and need relief 

Farmers facing heavy carbon taxes need to be effectively supported so they can continue to provide food that is “a necessity across the world,” says a researcher.

Such taxes play a vital role in helping nudge producers to reduce greenhouse gas emissions, said research associate Sarah Dobson of the University of Calgary’s School of Public Policy.

However, the taxes must be “balanced against the challenges that are specific to farmers… ensuring that we provide support to farmers that provides them with the cost savings they need while maintaining the incentive of the carbon price.”

Dobson is the author of a report, A Primer on Carbon Tax Relief for Farmers, that was recently released by the university’s Simpson Centre for Agricultural and Food Innovation and Public Education.

“The most significant agricultural fuel sources facing the full amount of the carbon tax are natural gas and propane used for grain and oilseed drying, and for the heating of barns and other farm buildings,” said the report.

The federal government has estimated the average carbon tax cost of such drying ranges from $210 per farm in Alberta to $774 per farm in Saskatchewan, with individual producers reporting up to $10,000.

The federal budget released on April 19 announced Ottawa’s intention to return part of the federal carbon tax to farmers in Alberta, Saskatchewan, Manitoba, and Ontario starting in 2021-22. Such “backstop jurisdictions” are subject to the tax because they haven’t adopted the federal carbon pollution pricing system.

“Farmers in these provinces lack consistency on the tax, which is differentially applied to agricultural fuels,” said the report.

“They must navigate between distinct sets of rules depending on the type of fuels they’re using and what those fuels are used for. Some fuels are eligible to be fully exempt from the carbon tax; others may be allowed a partial exemption, and still others may force farmers to face the full amount of the carbon tax.”

Although the federal budget said little about how part of the carbon tax will be returned to such farmers, “one key detail is that it will be based on carbon tax revenues collected in the prior fiscal year,” said the report. “This suggests the government is likely considering a lump sum rebate of some kind.”

The report doesn’t make any recommendations about what type of rebate should be implemented. However, Dobson said in an interview that “ultimately I would lean towards a lump sum rebate.”

Such rebates would likely be similar to the Climate Action Incentive payments currently received by households in the backstop provinces, she added. The federal carbon tax is slated to rise to $170 per tonne by 2030, up from $40 per tonne as of April 1.

A private member’s bill introduced in 2020 by the federal Conservative Party aimed to exempt all farm fuels from the carbon tax, including propane and natural gas. The proposed legislation, Bill C-206, officially died with the call of the federal election.

Dobson said expanding fuel exemptions to cover things such as grain and oilseed drying doesn’t preserve the carbon price incentive. Meanwhile, creating an output-based rebate system for agriculture will likely be too complicated to administer, she added.

The problem is that “you have thousands of small producers, each with relatively small emissions in comparison with other emissions-intensive and trade-exposed sectors where we tend to have large facilities with large emissions.”

The report emphasized rebates must also be “completely divorced from agricultural fuel use and emissions — either current or historical… if a farmer anticipates that lower fuel use and carbon tax payments in the current year will translate into a lower rebate in the following year, then this can reduce the incentive to invest in emissions reductions.”