Question Period Note: CARBON PRICING AND FAMILY FARMS

Q1 – What is the impact of pollution pricing on family farms? Q2 – What is the government doing to support farmers facing increasing costs due to pollution pricing?

R.1 - The vast majority of farms in Canada are owned and managed by families. Regardless of their ownership structure, these farms have the same goals: feeding Canadians and the world and supporting their families.
The pollution pricing system does not treat family farms differently than farms with other ownership structures. The Return of Fuel Charge Proceeds to Farmers Tax Credit is available to all eligible farms, whether they are owned by families or not. The tax credit is based on eligible farm expenses, using a standard payment rate across farms.
In addition, the Canada Carbon Rebate (CCR) is available to all eligible residents, including those living on family farms. Families living in small communities or rural areas, including farmers, are eligible for the rural supplement.
Some farming businesses may also be eligible to receive the Canada Carbon Rebate for Small Businesses. R.2 - We recognize that pollution pricing can increase the costs of grain drying and heating for those farmers who use fossil fuels.
Therefore, a portion of the proceeds from the price on pollution is being returned directly to farmers in backstop jurisdictions.
We also made grain drying a priority under the $429.4 million Agricultural Clean Technology program. The program prioritized $50 million for the purchase of more efficient grain dryers for farmers across Canada. Through the program, we have also supported the agriculture sector to increase adoption of clean technology on the farm in the areas of green energy, precision agriculture, and bioeconomy, resulting in improved operational efficiency and decreased greenhouse gas emissions.

Carbon Pricing
Pollution pricing is widely accepted as the most efficient and least-costly mechanism to reduce GHGs and mitigate climate change.
The federal carbon pollution pricing system has been specifically designed to account for the agriculture sector’s unique circumstances; the limited options and technologies available; and the contributions the sector is already making to fight climate change and reduce emissions.
About 97% of GHG emissions from Canadian farms are not subject to direct carbon pricing, including any biological emissions from livestock and crop production. The Government is working with Canadian farmers to support investment and develop voluntary and incentive-based approaches to reduce those emissions that are not subject to carbon pricing.
On-farm emissions that are currently subject to direct carbon pricing include propane and natural gas. Commercial greenhouse operators are eligible for 80% relief from the federal fuel charge on marketable natural gas and propane.
Costs to Farmers
The carbon price paid by farms will vary significantly by farm size, commodities produced, production practices, local weather conditions, and a variety of other factors. The cost per acre for Saskatchewan canola will be different from the cost per acre for Saskatchewan wheat. Similarly, the cost per acre for Saskatchewan wheat will be different from the cost per acre for Manitoba wheat.
Several industry groups and provinces have published their own estimates of the cost of carbon pricing. These estimates vary considerably, confirming that costs and cost estimates are highly variable depending on the farm type, farm size, region, whether indirect costs are included, and various other methodological assumptions about costs, including the extent to which costs are passed on through the supply chain.
For example, the Agricultural Producers Association of Saskatchewan (APAS) has estimated that, in 2021, carbon pricing costs Saskatchewan grain farmers an average of $2.93 per acre. This estimate includes both the direct carbon price paid by farmers and the indirect impacts of increased transportation costs. With approximately 20,000 grain farmers in Saskatchewan growing a total of 30 million acres of grain, this works out to an average cost of about $4,400 per farm.
To put these costs in context, excluding the smallest farms in the province (incorporated farms with less than $25,000 in revenues and unincorporated farms with less than $10,000 in revenues), Saskatchewan grain farmers had total revenues of about $15.6 billion in 2021, or average revenues of about $817,000 per farm. The Agricultural Producers Association of Saskatchewan’s analysis suggests that the scale of carbon price costs in Saskatchewan in 2021 was equal to approximately 0.5% of revenues.
Looking ahead to 2030, the APAS has estimated that a $170 per tonne carbon price in 2030 would cost an average Saskatchewan grain farmer $12.52 per acre. At that rate, the cost to a 5,000-acre farm would be, on average, $62,600. This estimate includes both the direct carbon price costs paid by farmers through fuel purchases, as well as indirect costs such as transportation costs, with the assumption that most of the increase in transportation costs associated with carbon pricing will be passed on to farmers. The transportation costs alone account for more than half of the APAS cost estimate. If only the direct costs of grain drying and farm heating are included, then the APAS estimates that a $170 per tonne carbon price in 2030 is expected to cost Saskatchewan grain farmers $5.74 per acre. At that rate, the cost to a 5,000-acre farm would be an average of $28,700.

One particularly important limitation of many industry and provincial estimates is that they do not consider any potential behavioral shift by farmers in response to the rising carbon price. In other words, the analyses assume that farmers would continue to use the same fuels, in the same quantities, in 2030 as they did over the 2015-2019 period. Realistically, it is expected that farmers will adjust their activities in response to a rising carbon price, in order to reduce emissions and thereby reduce carbon price costs. In addition, the APAS and similar analyses ignore the effect of the refundable tax credit and rebates, where a portion of the proceeds from the price on pollution is returned directly to farmers in backstop jurisdictions.
As the carbon price increases, the cost to farm operations is expected to increase as well. The government is working with the sector to develop win-win solutions, including investments to increase the adoption of clean technology and beneficial management practices on the farm to improve operational efficiency, while also reducing GHG emissions. The government has invested over $1.5 billion into supporting farmers with new technologies and farming practices to reduce GHG emissions and improve farm performance.
Defining a Farm Family
There are about 190,000 farms in Canada, according to the 2021 Census of Agriculture, with 97% of these farms being “family farms”, namely, farms that are owned by one or more individuals either as a sole proprietorship, a partnership, or family corporations (i.e., they are closely held, as opposed to publicly owned). Farm families are families of farm owners or operators, and so there is at least one farm family associated with each family farm.
37% of family farms are incorporated, while 63% are unincorporated. Incorporated farms are of various sizes, and reasons for incorporating the farm business include tax strategies, as well as ownership distribution and succession planning.
While incorporated farms (both family and non-family corporations) make up a minority of farms in Canada (about 25% of farms), they tend to be the larger farms, and account for a disproportionate share of farm acreage and income (72% of farm revenues).
Among farms with $1 million or more in annual revenue, more than 80% are incorporated.
Under the federal carbon pricing system, farm businesses that are in provinces where the federal fuel charge applies remit the fuel charge on propane and natural gas, while they are not subject to the fuel charge for gasoline and diesel used in eligible farm machinery.
Eligible farm operations in federal backstop jurisdictions can receive a portion of the proceeds from the price on pollution through a refundable tax credit. Whether a particular farm receives more in refund than what they pay in carbon price does not depend on its ownership structure.
Impact of Broader Tax Credits and Rebates on Farm Families
There are three distinct payments to help farmers offset the cost of federal pollution pricing; the Return of Fuel Charge Proceeds to Farmers Tax Credit for eligible farm businesses, the Canada Carbon Rebate for Small Businesses for eligible farm businesses, and the Canada Carbon Rebate (CCR) for eligible residents, including farm families.
The Return of Fuel Charge Proceeds to Farmers Tax Credit returns a portion of the fuel charge proceeds directly to farm operations in provinces and territories where the fuel charge applies, which currently includes every province and territory except for Quebec, British Columbia and the Northwest Territories. The credit amount available to farming businesses is equal to the eligible farming expenses in the calendar year when the fuel charge year starts, multiplied by a payment rate set each year by the Minister of Finance.
As outlined in Budget 2024, some farming businesses may also be eligible to receive the Canada Carbon Rebate for Small Businesses, which will return over $2.5 billion in proceeds from pollution pricing directly to small- and medium-sized businesses in backstop jurisdictions. To be eligible, farming businesses must be a Canadian-controlled private corporation and have less than 500 employees. The vast majority of Canadian incorporated farms satisfy these criteria. The payment rate of the refundable tax credit is established on an annual basis and is based on the number of employees that a business has in that year. The Canada Carbon Rebate for Small Businesses can help offset the cost of pollution pricing in addition to what farmers may also be eligible for under the Canada Carbon Rebate for individuals and families and the Return of Fuel Charge Proceeds to Farmers Tax Credit.
The CCR is available to all individuals, including farm families, residing in provinces where the fuel charge applies, and consists of a basic amount (depending on province of residence) and a supplement for residents of small and rural communities. The CCR is provided in quarterly tax-free payments starting in July 2022. In October 2023, the Prime Minister announced that the CCR supplement for residents of small and rural communities was increased from 10 to 20 percent of the baseline amount beginning in April 2024.
The Prime Minister also announced that the government is moving ahead with a temporary, three-year pause to the federal price on pollution on deliveries of heating oil in all jurisdictions where the federal fuel charge is in effect, while the federal government works with provinces to roll out heat pumps and phase out oil for heating over the longer term.
Bill C-234
Private Member’s Bill C-234 seeks to amend the Greenhouse Gas Pollution Pricing Act (GGPPA) to exempt all fuel used on farms from federal carbon pricing including natural gas and propane. Gasoline and diesel used on farm are already exempt from carbon pricing. On December 12, 2023, Bill C-234 was adopted by the Senate with amendments to remove the exemption for natural gas and propane used to heat or cool buildings or similar structures used for raising or housing livestock and growing crops and tighten the sunset clause to three years from eight. Commercial greenhouse operators would still receive the 80% rebate. Bill C-234 has now been sent back to the House of Commons for consideration of the Senate’s amendments.

• We recognize the important efforts that Canadian farmers continue to make in the fight against climate change.
• The majority of greenhouse gas emissions from agriculture are currently not subject to federal carbon pricing.

• Eligible farm operations in federal backstop jurisdictions receive a portion of the proceeds from the price on pollution through a refundable tax credit and rebates.

• We continue to work with farmers to find win-win solutions for reducing GHG emissions, while at the same time enhancing farm productivity, including investing over $1.5 billion into supporting these common goals.