432-00535 (Taxation)

Carbon pricing is about recognizing the cost of pollution and accounting for those costs in daily decisions. Putting a price on pollution is widely recognized as the most efficient means to drive innovation and energy efficiency in order to reduce emissions.

Canada’s approach is flexible, allowing any province or territory to design its own pricing system tailored to local needs, or to choose the federal pricing system. The federal government sets minimum national stringency standards that all systems must meet to ensure that they are comparable and contribute their fair share to reducing greenhouse gas emissions.

The federal carbon pollution pricing system applies in any jurisdiction that requests it or that does not implement its own system that meets these national stringency standards. The federal system has two parts: a charge on fossil fuels and an output-based pricing system for industrial facilities.

In December 2020, the Government of Canada published A Healthy Environment and a Healthy Economy, Canada’s strengthened climate plan of federal policies, programs and $15 billion in investments to build a stronger, cleaner, more resilient and inclusive economy. Once fully implemented, the plan will enable Canada to exceed its current 2030 greenhouse gas reduction target.

The Government of Canada recognize the important role Canadian farms have to play in reducing greenhouse gas emissions, including through new land management practices and innovative technologies.

The costs of inaction on climate change are enormous – as evidenced in the catastrophic weather events that have had severe impacts, including for Canadian farms. The costs of a changing climate mean that it can not be free to pollute. It is well known that putting a price on carbon pollution is the most efficient way to reduce greenhouse gas emissions and stimulate investments in clean innovation. It is critical to drive low cost-emission reductions and lay the foundation for a low carbon economy.

The Government designed the federal approach to pricing carbon pollution to provide targeted relief for farmers. For example, the carbon pollution price does not apply to greenhouse gas emissions from livestock or crop production. In addition, the federal fuel charge does not apply to gasoline and diesel used in tractors, trucks and other eligible farm machinery. Moreover, all direct proceeds from the federal price on pollution are returned to the province of origin, to individuals, families and businesses, and rural families receive a supplementary amount.

The Government of Canada is also creating economic opportunities through carbon offsets. The Federal GHG Offset System will encourage cost-effective, voluntary emissions reductions and removals across Canada from activities not covered by carbon pollution pricing, expanding the financial incentives to reduce carbon pollution across the economy. On March 6, the Government of Canada announced draft regulations to establish the Federal Greenhouse Gas Offset System. A first area of focus will be on activities and practices that improve the carbon sequestered in soils. This system will create opportunities for farmers who implement projects to reduce carbon pollution.

This is an example of another tool we are using to combat climate change, and create a cleaner, healthier future, and create new economic opportunities. It is part of the Government of Canada’s larger strategy, which also includes over $350 million in new agro-environmental programs, as outlined in A Healthy Environment and a Healthy Economy.

Taking serious climate action is an important economic opportunity that will maintain and create Canadian jobs, and make Canada’s economy more competitive.

The Clean Fuel Standard is also an important part of Canada’s plan to reduce emissions and accelerate the use of clean technologies and fuels. The Clean Fuel Standard will lead to increased investments in the following areas:

1. GHG reduction technologies along the life cycle of fossil fuels, such as carbon capture and storage and renewable electricity;
2. Lower carbon fuels, such as ethanol and hydrogen;
3. Advanced vehicle technologies, such as electric vehicles.

The Clean Fuel Standard will also create opportunities for voluntary parties and supporting industries. For example, biofuel producers, which are not regulated under the Clean Fuel Standard, will see an increased demand for their product. In turn, biofuel feedstock providers, like farmers and foresters, will also have an economic opportunity.

The Clean Fuel Standard is a key part of Canada’s strengthened climate plan, a Healthy Environment and a Healthy Economy. It is estimated that the Clean Fuel Standard would result in up to 20.6 Mt of GHG emissions reductions in 2030. The net societal cost of the Clean Fuel Standard is estimated to be $94 per tonne of carbon dioxide equivalent emissions between 2021 and 2040, based on the 2016 estimate of the social cost of carbon ($50/tonne of CO2). Recent estimates of social cost of carbon range between $135 and $440/tonne of CO2. Given the higher range of more recent social cost of carbon estimates, it is likely that the monetized benefits of the proposed Regulations would exceed its costs once the social cost of carbon estimates are updated.

In order to complement the Clean Fuel Standard, the Government of Canada has committed $1.5 billion in its strengthened climate plan to support domestic production of cleaner fuels (e.g. hydrogen, biocrude, renewable natural gas and diesel, cellulosic ethanol). This will increase domestic production of clean fuels to meet the demand created by the Clean Fuel Standard while creating new economic opportunities for the agriculture sector. A portion of these funds will be used to help farmers diversify by producing feedstocks for biofuels.

The proposed Clean Fuel Regulations were published in Canada Gazette, Part I, in December 2020. Final Regulations are expected to be published in fall 2021, with reduction requirements coming into force in December 2022. See the Government of Canada’s website on the Clean Fuel Regulations Regulatory Impact Analysis Statement (Canada Gazette, Part I, Volume 154, Number 51) for more details on the economic analysis of the proposed Clean Fuel Regulations.

The Minister of Agriculture and Agri-Food understands and acknowledges the concerns of the petitioners. Agriculture and Agri-Food Canada (AAFC) recognizes that taking action to address climate change is critical and urgent, both for our environment and our economy.  AAFC is actively engaging partners to ensure that Canadian farmers and ranchers remain competitive, and that our water, air, and soil are sustainable for generations to come.

Farmers are important drivers of the Canadian economy and play a key role in land stewardship and conservation. The Government recognizes the important role Canadian farms have to play in reducing greenhouse gas emissions, including through new land management practices and innovative technologies.

The costs of inaction on climate change are enormous, as evidenced in the catastrophic weather events that have had severe impacts, including for Canadian farms. The costs of a changing climate mean that it can not be free to pollute. Putting a price on carbon pollution is the most efficient way to reduce greenhouse gas emissions as it reduces pollution at the lowest cost to businesses and households and stimulates investments in clean innovation.

The Government explicitly designed the federal approach to price carbon pollution to provide targeted relief for farmers. For example, the federal fuel charge does not apply to gasoline and diesel used in tractors, trucks, and other farm machinery, nor is there a price on pollution on emissions from livestock and crop production. All proceeds from the federal price on pollution are returned to the province of origin, to individuals, families, and businesses. In addition, rural families receive a supplementary amount.

In December 2020, the Government announced its Strengthened Climate Plan (SCP), “A Healthy Environment and a Healthy Economy,” which is Canada’s road map to build a better future. This plan expands on the Pan-Canadian Framework on Clean Growth and Climate Change and continues to progress on the path that Canadians, their governments, and businesses have set. The SCP is a cornerstone of our government’s 2020 Speech from the Throne commitment to address climate change and recognizes the important role producers and ranchers will play in this fight.

The climate-smart agriculture initiatives under the SCP include a $350 million investment to support producers in adopting clean technology and beneficial management practices to reduce emissions. Furthermore, the $1.5 billion Low-carbon and Zero-emissions Fuels Fund will help expand our domestic biofuel production capacity to the benefit of grains and oilseeds producers.

Our government is committing to a path forward that further supports farmers in the fight against climate change, and the unique challenges they face. We are committed to new rebates for on-farm fuel use such as grain drying, in order to both support our food producers and also encourage new investments in sustainable technologies, that go beyond existing exemptions for farm fuels and rebates for greenhouses.

In addition, our government will make grain drying and barn heating a priority focus under the new $165 million Agricultural Clean Technology fund. The program will invest in energy efficiency, fuel switching, and other new technologies on farms. This program will be announced in the coming months.

These commitments build on our government’s launch of a $185 million Agricultural Climate Solutions program, which was announced on March 18, 2021.

The Government is also creating economic opportunities for producers through carbon offsets. The Federal Federal Greenhouse Gas (GHG) Offset System will encourage cost-effective, voluntary emissions reductions and removals across Canada from activities not covered by carbon pollution pricing, expanding the financial incentives to reduce carbon pollution across the economy. It will create opportunities for farmers who implement innovative projects to reduce carbon pollution.

On March 6^th, the Government announced draft regulations to establish the GHG Offset System. This market-based approach will spur innovation and private sector investment, and create economic opportunities including in the agricultural sector, and lead to further emissions reductions. One of our first areas of focus will be on activities and practices that improve the carbon sequestered in soils.

Current provincial and federal renewable fuels regulations have helped build a vibrant yet relatively small domestic biofuels industry, for which Canadian farmers and food processors supply high quality feedstock. The renewable fuel industry is an important stable, domestic market, and a driver of market diversity for the agriculture and agri-food sectors. Measures announced in the SCP, such as the Clean Fuel Regulations, support for low-carbon and zero-emissions fuels, and the renewed Agricultural Clean Technology Program, will further develop the Canadian clean fuel industry and further enhance opportunity for agriculture and agri-food sectors to provide low carbon feedstock and to contribute to Canadian climate change commitments, while providing grain farmers in Canada with more domestic marketing opportunities for their product.

The Government of Canada knows that climate change presents a threat to our long-term health and economic prosperity. Even in these challenging times, good environmental policy and addressing climate change matter.

Putting a price on pollution is an important part of Canada’s future, and the Government is doing this in a way that maintains affordability for households and ensures the competitiveness of Canadian companies.

The purpose of the Greenhouse Gas Pollution Pricing Act (GGPPA) is to reduce greenhouse gas (GHG) emissions by ensuring that pollution pricing applies broadly throughout Canada.  The GGPPA is comprised of a regulatory charge on fossil fuels (the “fuel charge”) and an output-based pricing system for large final emitters.

Our Government recognizes the importance of the agriculture sector in Canada. To this end, our Government is always working hard with stakeholders, representatives of various sectors, and provinces to find real, practical solutions for farmers, as needed.