Farms, small businesses hope federal changes to carbon pricing fix disproportionate costs, industry groups say

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Farms and other small businesses are hoping Ottawa’s changes to carbon pricing have opened the door to fixing the disproportionate costs those businesses bear.

Prime Minister Justin Trudeau announced Thursday that the federal government would increase the rural rebate and exempt home heating oil from the national carbon levy, changes that are expected to most benefit those who live in Atlantic Canada.

The announcement came as a surprise to industry groups that have been trying unsuccessfully to raise their concerns with Ottawa on how the carbon price has been affecting them.

“We’ve been told for years that there’d be no exemptions from carbon pricing because it would erode the signal to change behaviours and that any change would be a slippery slope,” said Dave Carey, co-chair of the Agriculture Carbon Alliance, an initiative formed by 15 industry groups, including dairy farmers and vegetable growers.

“It shows if the Trudeau government is willing to exempt Atlantic Canadians, we’re hoping to see exemptions for Canadian farmers, ranchers and growers from coast to coast to coast as well.”

The funding for the tax changes is coming out of the $2.5-billion that Ottawa had set aside over five years to reimburse small and medium-sized businesses for the higher expenses they face from the carbon price.

Although a rebate program for individuals – the Climate Action Incentive payments – was launched in 2019, a similar program for small businesses has never truly gotten off the ground. The government tried a program to subsidize businesses’ environmental upgrades starting in 2019, but it got little uptake and was wound down after two years. An investigation from the federal environment commissioner last year found that the program’s failure left small businesses “disproportionately burdened” by the carbon price.

Ottawa is trying a new tack with the Fuel Charge Proceeds Returns Program, in which it is hiring intermediary groups in various regions to hand out the money on its behalf. The Environment department did not indicate on Friday whether the intermediaries had been hired yet, but said there would be more details released “in early 2024.”

Katherine Cuplinskas, a spokesperson for Finance Minister Chrystia Freeland, said the new rebates for rural and Atlantic Canadians were taken from the small-business budget because the government believed it had devoted an excess of funding to that purpose.

Mr. Trudeau justified the change on Thursday by saying the needs of rural Canadians were particularly acute right now.

“In every policy we have to make choices,” he said. “We have done an awful lot for small businesses over the years.”

Jasmin Guénette, vice-president of national affairs for the Canadian Federation of Independent Business, said that view was disappointing. He said small businesses should immediately get the $2.5-billion in rebates they’ve been promised.

“Ultimately, the federal government should reconsider the entire carbon pricing strategy so that small businesses are not penalized by it,” Mr. Guénette said in a statement.

Farmers already have a rebate they can claim on their tax returns meant to offset the cost of the carbon price, but it too has returned far less money than expected.

Canada Revenue Agency told The Globe and Mail that $18.6-million had been returned through the credit to farmers based on their 2021 tax returns. That is less than the $34-million that Ottawa had expected to pay out for the 2021-22 tax year. CRA was not able to give figures for the 2022-23 tax year, but Ottawa budgeted $107-million for the credit in that year.

Mr. Carey of the Agriculture Carbon Alliance said the tax credit was flawed because it was not based on the carbon intensity of various farming activities, but just general CRA categories for business expenses.

His group has instead been pushing a private member’s bill, C-234, which would make farmers’ use of natural gas and propane exempt from the carbon levy. The bill passed the House of Commons this year and is in the Senate.

But he and others question the wisdom of applying carbon pricing to farmers.

Paul McLauchlin, president of the Rural Municipalities of Alberta, said farmers have higher electrical and gas bills than the average person because they have more square footage that they need to heat for livestock or drying crops such as wheat. And there are also few alternatives available: for example, no electric trucks powerful enough to haul livestock to market.

He said the new exemption for heating oil will likely just make farmers want to use it.

“If I have an understanding that I can buy heating oil – which is effectively kerosene – and I can buy it with no carbon levy, I would change all my grain drying and my barn heating to heating oil,” he said, adding: “I’ll tell you right now, there are folks doing the math.”

With a report from Emma Graney