Rising carbon taxes paid by railways projected to cost Prairie farmers several dollars per tonne

The rising carbon tax charged to railways while exporting grain will reduce the farmgate value of crops grown in Western Canada by several dollars per tonne, according to a pair of reports published over the past two weeks.

The Agricultural Producers Association of Saskatchewan (APAS) has released new calculations that say the federal government’s proposed $170/tonne carbon tax in 2030 will result in approximately $12.52/acre in added costs for wheat grown in the province — that figure includes direct and indirect costs passed down to farmers for trucking, grain drying, and rail transportation. The rail portion of APAS’ estimate works out to $0.075 per bushel — around $2.76 per tonne — for wheat with a carbon tax at $170/tonne.

“This cost increase is carried entirely by farmers and can’t be passed along to our customers,” notes APAS president and Regina-area farmer Todd Lewis. “We’re looking at a reduction of net farm income by hundreds of millions of dollars in Saskatchewan alone, and the modest rebates provided by the federal government won’t make up for these losses. It’s unsustainable for our members.”

A separate 16-page report by Blair Rutter, who spent more than a decade working on grain transportation policy as executive director of the Western Canadian Wheat Growers Association and previously served as policy manager for United Grain Growers, focuses specifically on the farmgate impact of the carbon tax on rail shipments.

He explains it’s not as simple as adding up the amount of carbon taxes paid annually on shipments of grain by CN and CP Rail, which he estimates at $22 million, and possibly higher.

“One thing to remember is that this affects your entire production. It doesn’t matter whether it goes to export or whether you sell it to a local crusher or flour mill. The carbon tax the railways incur affects the price of all the production, because everything is based off the export price. Anything that increases the cost to get your grain to market, affects the price farmers receive at the local elevator or processor,” says Rutter in the interview below. “So you can’t just look at what the railways pay, you have to look at the overall impact on the farm.”

Based on current provincial carbon tax rates, tariff information posted by the two mainline railways, and average rail shipments of all the major crops over the 2014-15 to 2018-19 time period, Rutter estimates the actual farmgate impact of carbon taxes on rail shipments of grain is currently between $34 million and $37 million annually, which represents an average of around $0.50 per tonne.

Rutter says a $170/tonne carbon price in 2030 would reduce farmgate proceeds on grain by $169 to $182 million annually, which works out to a Prairie-wide average carbon tax impact of $2.45 per tonne of production.

Breaking the math down provincially, taking differences in provincial carbon tax policies and the average distance grain has to move by rail into account, Rutter says Saskatchewan farmers are already seeing the highest costs, at around $0.65 per tonne. He estimates the impact at $0.41 per tonne in Manitoba, $0.50 in Alberta, and $0.63 in BC.

Plug a $170 price on carbon into Rutter’s calculations, and these amounts grow to $3.26 in Saskatchewan, $2.17 per tonne in Manitoba, $2.29 in Alberta, and $2.69 in BC in 2030.

Again, this is only looking at the impact of railways passing down the carbon tax that they’re paying. It doesn’t include other direct and indirect costs where the carbon tax will be passed on, such as commercial trucking, grain drying, processing, producing and transporting inputs, and so on.

Listen to Blair Rutter discuss his research on the impact of the carbon tax on grain transportation by rail (article continues below):

While the government intent is to make it more expensive to emit carbon, there will be several unintended consequences from the escalating carbon tax, says Rutter, including a reduced growth rate in farm production (i.e. yields) and more movement of grain south by truck and rail, as well as increased backhauls imports of inputs from places that don’t face a carbon tax in production and transportation, such as the U.S.

Rutter also raises questions about the fairness of how the proceeds of the carbon taxes paid by farmers are being used.

“Farmers are each paying thousands, tens of thousands of dollars in carbon tax, and it’s all going in to fund the household rebate,” he says. “It’s just going to cross-subsidize consumers, to me that’s just not fair. I hope at the very least that farmers can make that point and make some headway with the government.”

The issue of “taxation without representation” is also raised in Rutter’s paper, as he estimates CN and CP currently pay the B.C. government around $11.9 million in carbon taxes on grain shipments each year — costs which are passed back to farmers who live in the other western provinces.

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