October 11, 2018 Cap and…

October 11, 2018
Cap and Trade – Help Desk
Cap and Trade Branch
77 Wellesley Street West
10th Floor, Ferguson Block
Toronto ON, M7A 2T5

Re: Bill 4 Cap and Trade Cancellation Act, 2018
EBR 013-3738

The Ontario Greenhouse Vegetable Growers (OGVG) are pleased to provide comments in response to Bill 4 Cap and Trade Cancellation Act, 2018. OGVG represents approximately 200 farmers responsible for nearly 3,000 acres of greenhouses tomatoes, peppers and cucumbers across the province. With farmgate sales of $850 million in 2017, a contribution of $1.5 billion to the economy and a consistent track record of growth, the sector is a valuable economic driver for the province. Our members strive to grow fresh, high quality food year-round and contribute to meeting healthy eating and food security goals across the province.

OGVG’s members were pleased by the announcement to repeal the Climate Change Mitigation and Low-carbon Economy Act, 2016 due to the challenges that the Act imposed on greenhouse vegetable producers. An orderly wind-down of the Cap and Trade program and compensation framework provides a valuable opportunity to address the concerns that Ontario businesses faced over the past 2 years.

The OGVG membership consists of greenhouse facilities of various sizes and energy requirements. All members, both large and small, were impacted by Cap and Trade compliance costs. The rapid introduction of the Cap and Trade program in 2017 resulted in a number of unintended consequences, some of which have yet to be resolved under threat of the federal carbon tax regime.

There was disparity within the Ontario greenhouse sector, whereby large facilities could access a transition pathway to the low-carbon economy through the free allowance process. This access put small- to medium-sized operations at a disadvantage to larger facilities and diverted funds that could be used directly for improvements to lower their carbon-related emissions.

• In the first year of the program an operation emitting 10,000 tCO2e qualified to be a voluntary participant and under normal production (natural gas boiler) would receive 100% free allowances. They did bear the cost of the administrative fees associated with the program (i.e. reporting/verification of emissions). An operator emitting 9,999 tCO2e could not be a voluntary participant and was billed by the natural gas distributer for their associated emissions. At $18/tonne CO2e this equated to approx. $180,000 in 2017. This is a significant difference between operations that are essentially identical.
• Comparing natural gas expenses in 2016 to 2017, growers saw an increase of 2.8-3% in total operating expenses. Considering the single digit margins typical of horticulture in general, these impacts threaten economic viability.
Under the proposed federal carbon tax there will continue to be disparity across the Canadian greenhouse sector. British Columbia and Alberta have both put in place a rebate program for their greenhouse farmers, which provides relief at the level of 80% of the imposed carbon costs. The B.C. rebate program was put in place after the province experienced a sector stagnation after implementing the carbon tax.

Lastly, we continue to face competitiveness challenges with our largest trading partner, the United States. The lack of a complimentary carbon pricing mechanism in most competing jurisdictions will encourage two kinds of leakage that are both detrimental to Ontario’s interests:

• Carbon leakage occurs through the importation of products from jurisdictions where carbon pricing is not a factor in their cost structure. In addition, while natural gas commodity pricing is similar in Ontario and Ohio, transportation, delivery, storage and miscellaneous fees are nearly double in Ontario.
• Investment leakage occurs when Ontario’s greenhouse farmers expand in the US to take advantage of economic and policy conditions that are more favourable to greenhouse farming. In the past three years, we estimate over $250 million direct greenhouse construction investment has been made across the border by Ontario‐based greenhouse operators.

Regardless of facility size and due to the global nature of our markets, greenhouse vegetable farmers are unable to pass on carbon pricing costs to their customers. These costs must simply be absorbed by the farmer and in the long-term threaten food security and sovereignty in Ontario. OGVG urges the Government of Ontario to consider this factor when determining how best to distribute additional funds accrued in the Cap and Trade Wind Down Account.

OGVG is aware that the Government of Ontario is in the process of developing a new climate change strategy, which aims at reducing pollution right here in Ontario. OGVG supports this commendable goal and would recommend that any such strategy recognize the importance of food security and the evolving nature of modern agriculture. While the proposed federal backstop legislation made some attempt to recognize the unique nature and importance of agriculture, it failed to recognize the realities of modern farming. As an example, the majority of greenhouse farmers capture carbon dioxide off their boiler stacks and feed it to the crop during periods of high photosynthetic activity. This is a necessary crop input and without the addition of carbon dioxide, greenhouse crops would cease to achieve the high level of productivity required to remain competitive. The previous Ontario Cap and Trade program did not recognize this innovation, nor has the proposed federal carbon tax system. Jurisdictions such as British Columbia and Alberta have recognized the importance of greenhouse farming to the future of agriculture have established a rebate program accordingly.

One of the challenges faced by the sector under the Cap and Trade program was the ability to access support for climate change adaptation and energy efficiency upgrades. Greenhouse growers are early adopters of technology and many are at the forefront of the innovation curve. With energy representing a significant fraction of operating expenses growers are driven to increase energy efficiency whenever possible as a means to retain competitiveness. While in theory funds accrued under the Cap and Trade Program were recycled to support greenhouse gas reduction activities, the majority of large greenhouse operations had already installed the most energy efficient solutions, leaving them unable to take advantage of these or any other initiatives. While there is every expectation that new products and technologies will facilitate further efficiencies in the years to come, there needs to be a recognition that the transition away from fossil fuels is one that will take time and will require long-term and strategic investments be put in place. We look forward to working with the government and the private sector to identify a pathway forward.

Overall, the greenhouse vegetable sector in Ontario is pleased to see the immediate relief provided by the cancellation of the provincial Cap and Trade program. However, with the federal backstop looming, OGVG supports the development of a new Ontario climate change strategy that recognizes the importance of food security to Ontario and establishes a unique framework that supports modern agricultural and promotes competitiveness.

We thank you for this opportunity to comment and look forward to doing business in Ontario.