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Agriculture and Climate Change Policy: Financial Impacts of Carbon Pricing on Canadian Farms, 2018

Agriculture and Climate Change Policy: Financial Impacts of Carbon Pricing on Canadian Farms, 2018 (PDF)

This report is a scenario analysis done in 2018 on the financial impact of carbon pricing on the agriculture sector based on the latest information available at the time of writing. This information included 2016 tax data from farms and 2017 provincial policies.

It is an analysis of the potential impacts of carbon pricing prior to policy implementation. The actual policy was updated based on lessons learned from this analysis. For example, rebates for greenhouses were included based on this analysis.

This report has been publicly available since July 2018. After having received multiple requests for the document it was posted on the site for greater ease of reference.

Background

Provinces with existing carbon pricing programs encompass 64% of Canada’s cash farm receipts

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Federal backstop:
Two key elements:

  • a fuel charge applied to fossil fuels;
  • an output-based pricing system (OBPS) for industrial facilities that emit above a certain threshold, with an opt-in capability for smaller facilities with emission below the threshold.

Carbon pricing system unknown:
Yukon;
Nunavut;
Newfoundland and Labrador.

Current provincial carbon pricing systems:
Explicit-priced based system:
British Columbia – carbon tax.

Hybrid system:
Alberta – carbon levy applied to the price of fuels and output-based allocation system of larger emitters of GHGs.

Cap-and-trade system:
Ontario and Quebec – cap-and-trade system that is part of the Western Climate Initiative (WCI).

Proposed carbon pricing systems:
Proposed systems:
Manitoba – carbon tax and OBPS;
Nova Scotia – cap-and-trade;
New Brunswick – gas tax and has requested federal OBPS for large emitters;
Northwest Territories – carbon levy;
Saskatchewan – OPBS.

Canadian farmers have reduced GHG emissions while producing more

Canada’s Agricultural Net GHG Emissions, Gross Domestic Product, and Emission Intensity, 1997 to 2015

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Net GHG Emissions decrease slightly over the time period.
Agricultural GDP increases over the time period.
GHG emission intensity (Net GHG Emissions per Agricultural GDP) decreases over the time period.

Source: Environment and Climate Change Canada, National Inventory Report 2017; Statistics Canada, CANSIM 379-0030

Only a small portion of total agricultural-based emissions will be directly affected by carbon pricing

Canada’s Agricultural GHG Emissions by Source in 2016

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Animal Production, 37 Mt
Crop Production, 23 Mt
On-Farm Fuel Use, 12 Mt
Soil Carbon Sequestration, -11 Mt

Source: National Inventory Report 2018, Environment and Climate Change Canada.

The updated analysis evaluates the direct financial impacts of a carbon price; it does not include revenue recycling, behavioural changes nor other benefits of carbon pricing

Carbon pricing is expected to directly impact a relatively small subset of farm operating expenses

Farm Gross Operating Expenses, 2016

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Electricity, machinery, and heating fuel account for $3.5 billion (7.8% of total operating expenses) which are the farm operation activities which carbon pricing currently applies
Other operating expenses account for $41.4 billion (92.2% of total operating expenses)

Source: Statistis Canada, CANSIM 002-0005, and AAFC calculations

Financial Impacts are expected to be modest for the average Canadian farm

Estimated Financial Impact of Carbon Pricing on Average Net Operating Expenses and Average Net Operating Income

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Increase in net operating expenses at $20 per tonne nationally and all provinces except Ontario and Quebec
Increase in net operating expenses at $50 per tonne for Ontario and Quebec

Source: Agriculture and Agri-Food Canada estimates.
Net Operating Expenses: 0.1% (MB, SK, AB) to 0.45% (ON)

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Decrease in net operating income at $20 per tonne nationally and all provinces except Ontario and Quebec
Decrease in net operating income at $50 per tonne for Ontario and Quebec

Source: Agriculture and Agri-Food Canada estimates.
Net Operating Income: -0.2% (MB) to -2.8% (NL)

The magnitude of impacts of carbon pricing will vary by farm type

Estimated financial Impacts of Carbon Pricing by Farm Type, for Canada

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Increase in net operating expenses for all farm types except oilseed

Decrease in net income for all farm types

Share of heating and electricity in operating expenses for all farms, oilseed and grains, potato, fruit, greenhouse, other crops, beef, dairy, hop, poultry; the highest expenses being for greenhouse at 11%.

Source: Agriculture and Agri-Food Canada estimates

Potential opportunities exist for farmers to benefit from climate change policies

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