The Nov. 30 Western Producer editorial raises the question of whether the federal price on pollution may be better than more directive measures that future governments may use to reduce emissions if the price on pollution is removed.
The article thus raises a very important question and encourages readers to consider alternatives but does not take the discussion to the next step.
In this op ed, I would like to make three arguments:
- The price on pollution is an intelligent policy for consumers.
- For industries such as prairie agriculture, which is predominantly export oriented, it is poorly structured.
- The approach to fix it for agriculture through specific exemptions is a poor strategy.
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First, how it works for consumers.
The policy collects a price for all fossil fuels consumed and then pays the average back to all households. Thus, any move to cut emissions immediately benefits the household that figures out how to make the cut.
Consider four households that each burn enough fossil fuel to be charged $200, $400, $600 and $800 under the price on pollution. The rebate in this case would be $500 per household.
The two households that created less pollution would receive a payment from the two that used more. Each household is encouraged to reduce its emissions to become a net saver rather than a spender.
Now, consider the problem for agriculture. Most of our production is exported. There is no mechanism to rebate the average, so any payment is lost to the sector. If our competitiveness is reduced, the loss may be to a less environmentally friendly exporter.
The government tried to “fix” the agriculture dilemma by creating an exemption for most of the fossil fuel we use in agriculture. We pay no price on pollution on the diesel we burn or the fertilizer we use.
Farm groups fell into the government exemption trap. There was a rally cry for propane for grain drying and heating for barns to be exempt from the price on pollution.
The problem with the exemption trap is threefold.
First, the list of exemptions will never be complete. Consider the fleet of commercial truckers many of us depend on to move our products. Consider the diesel used by railways that increases the price spread between farmgate and international sale. These are much larger than the propane used for grain drying but difficult to administer through any exemption.
The second problem with exemptions is that they will create market barriers. International markets are already considering carbon offset charges against imports that do not price emissions. These charges are inevitable because pollution costs are clearly part of the cost of production. Nations that fail to price them can expect to face some form of dumping charges.
The exemption trap also fails to create the proper incentive within our sector to make the changes we will need to make to meet future market expectations. Prairie farmers are innovators, and with the right incentives, innovations that have not yet been considered will emerge.
Rather than falling into the exemption trap, our sector needs to have a complete price on pollution and a full rebate proportionate to eligible net sales.
Agrilnvest, which is widely used already, has a framework for payments based on eligible net sales. By having a complete price with a rebate based on eligible net sales, there would be no net loss to the sector, just like for consumers. There would also be the same incentive to make emission reductions.
Perhaps a price on carbon in agriculture could open the door for further discussions on pricing the carbon that is sequestered through good practices, wetlands and tree rows. It creates a path to tell the full story about prairie agriculture and avoid future market pressures, which will otherwise claim we are failing to show the full cost of our production.
We need a strategy based on economics, not politics.
Ian McCreary is a mixed grain and livestock farmer from Bladworth, Sask. He holds bachelor and masters degrees in agricultural economics.
