Input purchases add indirect carbon tax to agricultural sector

Fuel and electricity are essential parts of the business, yet there are no tax benefits for maintaining grasslands or protecting water

Alberta farmers are already noticing higher utility bills because of the provincial carbon levy, but the greater impact may be indirect costs.

Alberta is charging $20 per tonne of combustion emissions with an increase to $30 per tonne next year.

“The carbon tax is not necessarily going to have a big effect on the agriculture sector just because the number of combustion emissions are relatively low, but there is going to be an impact through indirect emissions that you purchase from other sectors,” said Jennifer Winter of the University of Calgary’s School of Public Policy, who specializes in energy and environment studies.

She is interested in analyzing those indirect costs from transportation, electricity generation and suppliers who must pay the levy.

“You are also concerned about the emissions you are importing indirectly by purchasing from other parts of the economy,” she said.

Few hard numbers are available, but calculations on potential impacts on consumers from the direct and indirect costs indicate that it will be about $300 per year.

However, it will be higher for rural households. At $50 a tonne, the average household would pay about $550.

The tax is now paid on home heating fuel and gasoline for transportation. Electricity production creates emissions, but the government recently announced the ultimate cost would be capped.

“To really disentangle the effect of the carbon tax, we do need a few years of data with the carbon tax in place to really figure out the impact on emissions,” she said.

“The challenge right now is the financial flow data ends in 2011, so we have to wait to see how the financial flow data has changed as a result of the carbon tax, but with the old data we have, we can make predictions of how the carbon tax will result in changed costs for individual sectors of the economy.”

The government has already paid rebates to about a million Albertans and is offering energy efficient incentives to install solar panels and distributing LED light bulbs and low flow showerheads.

Ontario and Quebec have established a cap and trade system, while Alberta and British Columbia have a carbon levy.

Most economists advocate pricing as opposed to a regulatory solution. Government does not need information on what is the least costly way to reduce emissions because the levy encourages be-haviourial changes.

Combustion emissions are generally easy to tax. Other emissions beyond combustion come from agriculture, waste and industrial sources. These are harder to measure and difficult to price.

A carbon tax can be built into the current tax structure so that it is relatively easy to administer.

“I have a preference for a carbon tax over a cap and trade system because there is certainty about prices,” she said. “It is a lot more transparent because you know exactly what the tax costs will be imposed on your behaviour.”

Canada’s agriculture emissions total 72.9 million tonnes, and Alberta’s contribution is 22 million tonnes.

“Canada’s contribution is 1.6 percent of total global emissions, so we are very small emitter,” Winter said.

“If we do something and no one else does, we are penalizing ourselves. We need complementary policies to mitigate the impacts.”

In a recent presentation to the Alberta government’s economic committee, farm group representatives described the impact of the levy. Many said the industry has already implemented efficiencies. Marked farm fuel is exempt, but it does not make a great impact.

“We don’t have much opportunity to make a tractor more fuel efficient. We still have to get those across in the ground. If there is a way to make it more fuel efficient, we probably have taken advantage of it,” said Tom Lynch Staunton of Alberta Beef Producers

“For us to do business, we have to use that fuel, and we can’t necessarily have an opportunity to make any more fuel efficient measures.”

There are fewer ways to pass on the costs.

Poultry producer Erna Ference, representing the supply-managed groups, said most farms have already taken steps to install efficient heating systems.

“The fuel tax exemption doesn’t help our industry to the degree it does for the cattle feeders or the grains and oilseeds who use a lot of fuel,” she said.“We are intensive natural gas users and we are efficient.”

B.C. has offered incentives to agriculture, and Alberta provided an exemption to greenhouse growers.

“It was really discouraging when the government gave an exemption to greenhouses and not to our industry,” Ference said.

“It makes us uncompetitive.”

The tax is meant to change be-haviour, but there are few ways for agriculture to take advantage of its contributions to lowering emissions or protecting the environment.

“Most eco-goods and services are not recognized in any marketplace,” said James Hargrave of the Alberta Grazing Leaseholders Association. “There are no incentives for maintaining grasslands in their natural state. There are only incentives for change of practice.”

Protecting water, habitat and grasslands and offering recreation need to be recognized as a byproduct of the agriculture industry.

“This represents an untapped opportunity to diversify our revenue streams,” he said.

“It would level the playing field with other land uses such as rural residential, perennial cropping and intensive cropping.”

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