A Primer on Carbon Tax Relief for Farmers

Abstract

Canada’s federal carbon tax is currently inconsistently applied to agricultural fuels. Depending on the type of fuel and its use, farmers may be eligible for a full exemption from the carbon tax, a partial exemption or they may face the full amount of the tax. As an industry, agriculture has comparable sector-level emissions and trade flows as industrial sectors that are eligible to receive carbon pricing support through participation in the federal output-based pricing system (OBPS) and comparable provincial programs Agriculture is currently excluded from these programs, however, as it is characterized by thousands of small producers, the vast majority of which do not exceed the required minimum emissions thresholds. Looking ahead, agriculture should be evaluated to determine whether it meets the emissions intensity and trade exposure thresholds for voluntary participation in federal and provincial OBPS programs. If these thresholds are met then this provides a strong argument for extending carbon pricing support to all sources of combustion emissions in agriculture. Any future support should be offered through a mechanism that maintains the full incentive of the carbon tax. The preferred options are either a lump-sum rebate that is independent of fuel use and emissions, or an output-based rebate system specific to agriculture.